ARTICLES
An Introduction to Beijing QDLP Pilot Program
An Introduction to Beijing QDLP Pilot Program
Recently, Beijing has proposed to promote the qualified domestic limited partner pilot program (QDLP pilot) in the construction of Integrated National Demonstration Zone for Opening up the Services Sector (国家服务业扩大开放综合示范区) and Beijing Pilot Free Trade Zone (北京自由贸易试验区), which gives global asset management companies more opportunities to raise funds from high net-worth individual and institutional investors in China. First started in Shanghai in 2012, QDLP pilot program has now expanded to 9 regions such as Shenzhen and Qingdao, but among them Beijing QDLP pilot program has its own advantages and thus could be more attractive compared to other regions. According to Interim Measures of Beijing Municipality on Pilot Work of Overseas Investment of Qualified Domestic Limited Partners（《北京市关于开展合格境内有限合伙人境外投资试点工作的暂行办法》）and Detailed Rules of Beijing Municipality on Pilot Work of Overseas Investment of Qualified Domestic Limited Partners（《北京市关于开展合格境内有限合伙人境外投资试点工作的实施细则》）jointly issued by Beijing Local Financial Supervision and Administration(“BLFSA") and Beijing Administration for Market Regulation effective on January 19, 2020, also based on our understanding of this program and discussion with the authority, we summarize the Beijing QDLP pilot program as follows.
I．Introduction
Beijing QDLP pilot program was first introduced in late 2019, as one of Beijing government’s several measures to open up financial sector. This program means, with QDLP quota, foreign financial enterprise could set up a pilot fund management enterprise (“PFME") registered in Beijing to raise funds in China and then make offshore investment. Immediately after this program was published, it is warmly welcomed by financial institutions. Over fifteen financial institutions have announced their interests to participate in this pilot, and seven financial institutions including Amundi and Bridgewater have declared their demand of nearly $2 billion pilot quota in total.
For QDLP pilot program, the quota of each pilot region is determined by the State Administration of Foreign Exchange (the “SAFE"), China’s foreign exchange regulator. Beijing issued $5 billion QDLP pilot quota in early 2020, and this quota has been increased to $10 billion in September of 2020, which is equal to the quotes in Shanghai and Shenzhen.
As of today, Beijing has approved 2 PFME: Oaktree (Beijing) Investment Management Co., Ltd. (“Oaktree") and Fengyuhuili Private Fund Management (Beijing) Co., Ltd. (“Fengyuhuili"). Oaktree, registered on February 14, 2020, is a subsidiary of Oaktree Capital (Hong Kong) Limited and obtained $500 million pilot quota. Fengyuhuili, registered on December 25, 2020, is a subsidiary of Amundi Asset Management, the largest asset management firm in Europe, and obtained $300 million pilot quota. This means that Beijing still has $9.2 billion pilot quota left.
Compared to that in other regions, PFME in Beijing has two advantages. One is that the fund it manages can be invested directly abroad in RMB; and the other is that the permitted investment scope of the funds is relatively comprehensive (for example, the funds can be invested into offshore unlisted enterprises, which is not permitted in some pilot regions.)
II．The comparison among Beijing QDLP, Shanghai QDLP and Shenzhen QDIE
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QDIE is called “Shenzhen version of QDLP", the structures of QDIE and QDLP are substantially same. The main difference is the investment scope. QDIE in Shenzhen is mainly invested into offshore non-public assets (such as equity of unlisted enterprises, privately traded stocks or bond, private funds). The mandatory requirements of shareholder eligibility, capital and minimum fund size in respect of QDIE’s application have been cancelled according to the Measures of Shenzhen City on Pilot Work of Overseas Investment of Qualified Domestic Investors（《深圳市关于开展合格境内投资者境外投资试点工作的管理办法》）dated May 7, 2021. However, the cancellation of such requirements doesn’t mean that Shenzhen has no qualification requirement for overseas investment entities to apply for QDIE. In practice, Shenzhen Local Financial Supervision and Administration and relevant authorities will jointly review the applicants’ staffing, compliance management, and risk control capacity for the decision making, then make adjustment according to the market development circumstances.
III．The application process for PFME and pilot fund qualification in Beijing
To apply for the qualification of PFME and pilot fund, the fund management enterprise or the controlling shareholder, actual controller or managing partner thereof shall submit application materials to the BLFSA. BLFSA will organize joint review conference[1] to review the application. If the application meets the relevant requirements, it will be reported to the Beijing municipal government for approval, and then the BLFSA will issue a written opinion to the applicant granting the pilot qualification and pilot quota. The joint review conference will assess the expertise level, private investment experience and overseas investment strategy of the PFME. The whole process is convenient and quick. According to news reported, it only took 5 business days for Oaktree to obtain the pilot qualification and the pilot quota from BLFSA.
PFMEs are not allowed to transfer or sell pilot quota. If the pilot qualification is issued to the PFME, the PFME and the pilot fund must invest within the pilot quota and shall not change the investment strategy at its sole discretion. And one thing shall be noted is that the PFME and the pilot fund should use the pilot quota within 2 years from being granted such quota. If the quota is not used within 2 years, BLFSA reserves the right to revoke the pilot qualification and rescind the pilot quota.
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