JD Capital, one of the largest domestic Chinese private equity funds with RMB31.45 billion (US$4.8 billion) under management, is among 83 private investment funds named by the China Securities Regulatory Commission as breaking certain regulatory guidelines in a recent disciplinary procedure.
Shanghai-listed JD Capital and two of its subsidiaries, Tibet Kunwu JD Capital Co. and Suzhou Kunwu JD Investment Management Co., as well as Ping An Wealth Management Inc., an investment unit under China Ping An Insurance Group, with RMB190 billion (US$29 billion) under management, are among the 83 funds subject to the CSRC’s administrative regulatory measures due to misconduct and inappropriate behavior, according to a statement published by the Chinese regulator last week.
These investment funds, along with dozens of lesser-known Chinese investment firms, face disciplinary measures by the CSRC because of misconduct in marketing activities, marketing materials promising principal and return guarantees, failing to disclose required information to investors, and other questionable behavior, according to the statement.
The private investment industry, including private equity, venture capital and private securities investment firms, is well regulated in China, in contrast to markets elsewhere. The CSRC has conducted regular half-year inspections and published violations since 2014.
The CSRC said it randomly inspected 328 private equity funds registered with the Asset Management Association of China during the first half of 2017, as part of its regular securities market enforcement effort. These funds manage more than 2,600 investment products with RMB1.27 trillion (US$194 billion) in assets under management, accounting for 14.8% of all assets-under-management in the Chinese private investment industry.
In addition to verify fund registration information, the securities watchdog also inspected funds’ fundraising and investment behavior compliance and information disclosure compliance. The inspection also focused on whether the funds comply with a new regulation on asset management effected by the CSRC last July. That regulation involves requirements on how funds should market their products to investors and provide consulting service to clients. It also defined specific leverage ratios allowed for different types of investment products.
The disciplinary procedure also found 12 funds that have been involved in illegal fundraising, misappropriation of fund assets, fundraising to non-qualified investors, or insider trading. In addition, a total of 190 funds have outdated or incomplete registration information, said the statement.