QFLP, which has been hotly discussed for a long time, finally "breaked the ice" at the beginning of 2011 after everyone was looking forward to it for a long time.
In the field of private equity investment, Beijing and Shanghai have always been ahead, and QFLP (Qualified Foreign Limited Partner, Qualified Foreign Limited Partner) has naturally become the first batch of approved pilot cities.
On January 12, 2011, the "Measures for the Implementation of the Pilot Work of Foreign-Invested Equity Investment Enterprises in Shanghai" (hereinafter referred to as the "Measures") formulated by the Shanghai Finance Office, the Shanghai Municipal Commission of Commerce and the Shanghai Municipal Administration for Industry and Commerce was published on The official website, the QFLP system was officially announced at the local level. Under this system, the qualified overseas limited partners can obtain a certain amount of RMB exchange rate, convert the capital into RMB, invest in domestic enterprises, and after gaining profits, exchange the received RMB into USD through the escrow account to exit.
QFLP or QFGP?
The promulgation of the "Measure" for a long time brought two breakthroughs.
The first breakthrough was to determine the attributes of RMB funds with foreign fund management companies participating in the contribution. The Measures stipulate: "The foreign-invested equity investment management enterprises that are allowed to be piloted may use foreign exchange funds to contribute to the equity investment enterprises initiated by them, and the amount shall not exceed 5% of the total amount of funds raised. This part of the investment will not affect the equity investment invested. The original attributes of the enterprise. "That is, foreign GP investment does not exceed 5% of the total amount of RMB funds raised, and the fund is still recognized as an attribute of RMB funds.
According to industry practice, after the establishment of a fund management company, when the fund is established, the fund management company also needs to invest a part of the funds, the general amount is 1% to 5% of the total amount of the fund. Zhou Ting, a partner of Weike Pingheide Law Firm, said, "This is not subject to the restrictions of the" Guidance Catalog for Foreign Investment Industries "for RMB funds managed by foreign-funded GPs." National treatment has always been foreign-funded GP and The focus of LP's attention, this pilot program requires GP to contribute no more than 5%, that is, it does not change the nature of equity investment enterprises, which brings new highlights to the discussion of national treatment.
The second breakthrough is to solve the problem of foreign exchange exchange for foreign funds investing in domestic funds. According to the Measures issued in January, foreign-funded fund management companies granted pilot qualifications received a 5% foreign exchange quota. In the upcoming QFLP method in Beijing, the proportion of 5% may be reduced to 3%. Zhou Ting introduced, "General equity funds require GPs to invest 1% to 5%, the proportion of 5% is a little high, generally 1%." Beijing will reduce the proportion to 3%, and Shanghai may make changes afterwards.
However, "the" breakthrough "of the" Method "that has been introduced only stays at the frame level, and only one boot is landed." Zhou Ting made a metaphor vividly.
Specifically, the "Measures" one is the lack of specific implementation rules for foreign exchange GP or foreign LP foreign exchange settlement investment RMB fund exchange settlement. Second, the geographical scope of the "Measures" issued by the Shanghai region has not been specifically explained. Third, there is no definition of the nature of the RMB fund in which foreign LPs participate. The current QFLP method introduced by Shanghai is actually QFGP.
Prior to the promulgation of the "Measures", foreign funds raising RMB funds in China were always trapped in the "Administrative Measures for Foreign-invested Venture Capital Enterprises" issued by the Ministry of Commerce in 2006 and the "Circular 142" issued by the SAFE in 2008. As long as there is capital from foreign investors in the source, it will be subject to foreign investment approval procedures and requirements, and "Circular 142" stipulates that RMB funds from foreign exchange investment of foreign-funded enterprises shall not be used for domestic purposes unless otherwise specified. Equity investment.
The introduction of the "Measures" solved the above problems. Article 24 of the Measures stipulates: “Foreign-invested equity investment management enterprises that are permitted to pilot can use foreign exchange funds to contribute to the equity investment enterprises initiated by them, as long as the amount does not exceed 5% of the total funds raised, this part of the investment will not be affected The original attributes of the invested equity investment enterprise. "The RMB fund managed by the foreign-funded GP has received a proper name, and can enjoy its national treatment justifiably.
But this is limited to GP as foreign capital, and the remaining LP must be domestic capital. Therefore, the QFLP "Measures" issued by Shanghai is actually QFGP. "Shanghai's" Measures "is called the implementation method of QFLP, but it is still at the level of stipulating QFGP." Zhou Ting explained, "One of the most beneficial is the foreign-funded GP, the problem of foreign-funded LP investment in RMB funds is not Mention. "
However, according to the latest news, a document issued by Shanghai on the pilot program of foreign participation in RMB equity investment funds is expected to be announced in April. It stipulates that the maximum amount of foreign exchange for each foreign currency renminbi fund in US dollars cannot exceed 50% of the fundraising scale, but the applicable object is limited to foreign renminbi funds established in Shanghai Pudong New Area. The 50% ratio limits the foreign exchange rate of foreign LPs, which is the true QFLP. However, the final situation will require the formal introduction of the plan.
Shortlist conjecture
As a new channel for direct investment in China, overseas GPs and LPs are interested in QFLP. The implementation of the "Measures" in Shanghai attracted many water testers. Carlyle Group, Softbank China, TPG, NYPC Kabe Fund have all set up RMB funds to prepare for the first batch of QFLP pilot projects. The big brothers in the PE world are flexing their muscles, and the outside world guesses who will vote for the first single QFLP.
Guosheng Lyon RMB Fund has said that it has been listed as a pilot company. In August 2009, Lyon Securities and Shanghai Guosheng jointly established an asset management company in Shanghai and jointly initiated the establishment of a RMB 10 billion RMB equity investment fund. David Kopp, the founder and CEO of Kabe Fund, is looking forward to QFLP. "At present, many GPs set up foreign funds and RMB funds separately. There are many obvious contradictions and conflicts. The introduction of QFLP will simplify these problems Once the QFLP policy measures are implemented, we look forward to working with the Beijing Municipal Government to open a QFLP project. I think it will be in the near future. "
Hezhong Capital is also actively involved in the formulation of the "Measures", "We hope that there will be opportunities to participate in it in the future, and the participation of foreign FOF will better coordinate the integration between LP and GP." Zhao, Chief Representative of Hezhong Capital China Peng said.
As early as 2008, some international LP people began to actively promote the Chinese government's liberalization policy, agreeing that foreign LPs exchange a certain amount of foreign currency into RMB and invest directly in local GPs. At the same time, some overseas LPs try to establish RMB FOF funds directly in China Jade investment, etc., but these efforts are rarely fruitful. Puyu Investment has announced the establishment of RMB FOF since 2007, and it has not been successfully raised to this day.
The introduction of the "Measures" is undoubtedly good news for foreign-funded GPs and LPs. Foreign-funded GPs and LPs can directly invest in domestic funds, and a 5% foreign exchange quota is also liberalized for foreign-funded GPs. The "Measures" clearly stipulate that foreign sovereign funds, pension funds, endowment funds, charitable funds, FOFs, and insurance companies, banks, securities and other major PE industry institutional investors can participate in the shortlist of QFLPs. The standard of self-owned assets is not less than 500 million US dollars or the size of managed assets is not less than 1 billion US dollars, has not been punished by judicial authorities and relevant regulatory agencies within the past two years, and has more than 5 years of relevant investment experience.
However, after the introduction of the "Measures", it remains to be seen whether international LP institutions can adapt in a short time. In addition to the foreign-funded GPs that have already been prepared, some international LP institutions still hold a positive attitude on this but reserve space to wait and see. Gong Jie, executive director of Morgan Stanley's AIP private equity fund and head of Asian business, said, "The launch of the QFLP pilot means that China's private equity funds are moving towards a standardized development. AIP is optimistic about China's PE market, but it is still stable for the specific opening of the RMB fund business. Look again. "The level of large international LP institutions is clear. There is a certain period of time from decision-making to operation. We will still pay attention to the experimental stage of the" Measures "and specifically examine our own ability to accept. Large-scale pensions, endowment funds, insurance companies, etc. put more emphasis on operability and safety.
Other types of LPs, such as family trust funds and private consortiums, are more flexible LPs and are regarded as qualified candidates for the "Measures". However, the relevant departments in Shanghai have not made a specific response to this. "The" method "still emphasizes the importance of" cases and individual approvals ". Even if it meets the hard criteria in the" method ", it does not necessarily mean that it can be fully passed. The" method "is still a transitional policy and needs time to test. "" Zhou Ting said.
Strive for QFLP everywhere
With the introduction of the Shanghai version of QFLP, Shanghai seems to be at the forefront of all regions. Subsequently, Beijing announced that it would become a QFLP pilot area.
In the upcoming QFLP document issued by Beijing, some provisions have been adjusted. The Beijing Pilot Measures specify that the approved QFLP foreign capital PE “the amount of foreign capital subscription funds shall not exceed 50% of the fund sizeâ€, and the new regulations to be introduced in Shanghai in April will also use this standard; Quota regulations. At the same time, Beijing designated seven strategic emerging industries in the draft document: energy conservation and environmental protection, next-generation information technology, biology, high-end equipment manufacturing, new energy, new materials and new energy vehicles. Foreign PEs must apply for the QFLP pilot qualification only if they have invested in these seven areas.
After Beijing and Shanghai announced that they would become pilots, other places also began to prepare for the QFLP system. Tianjin and Chongqing have clearly stated that they have entered the application stage.
In fact, Tianjin had made similar attempts as early as 2009. In early 2009, when the State Council approved the "first-in-first-test" plan for the Tianjin Binhai New Area, Tianjin tried to advance the QFLP pilot. Tianjin intends to liberalize its policies: Foreign-funded PEs under US $ 100 million can be converted into RMB, and the pilot funds are set to Softbank China and CITIC Capital. But in the end it was still rejected by the supervisory authorities.
This time QFLP has landed in Beijing, Shanghai and Tianjin and has started a new round of competition. Cui Jindu, deputy mayor of Tianjin, once said, "Tianjin has been continuously striving for the QFLP system, hoping to use it as an overall arrangement to raise the level of investment promotion policies."
Chongqing, as a leading city in the development of the western region, has begun applying to the country for a QFLP foreign exchange settlement pilot, and is seeking approval in 2011. Chongqing made it clear that "the pilot project to facilitate the return of foreign private equity funds for investment facilitation" means that Chongqing Municipality has now applied to the relevant state authorities for a pilot QFLP settlement. Chongqing hopes to capture international hot money by establishing a QFLP channel.
The introduction of the QFLP method may effectively solve the problem of lack of LP in the development of RMB funds. The implementation of the QFLP pilot program has opened the door for foreign PEs to set up and raise RMB funds in China. As a result, the competition between local and foreign PE will also form a new pattern. The QFLP method has lifted an obstacle for foreign PE investment in China, and will cause certain competitive pressures on local PEs, but it will also add a strong touch to the standardized development of the overall PE industry.
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