PE funds now face threat of crackdown

China’s securities regulator said it plans to rein in the country’s private equity and venture capital funds, stop public offerings disguised as private placements and fight embezzlement of assets.

The China Securities Regulatory Commission will work to root out “fake” private equity funds that are actually sold to the general public instead of targeted investors, Chairman Yi Huiman said in a speech to a fund-industry association. The CSRC will also crack down on money managers that illicitly take public deposits, offer loans or embezzle fund assets.

China’s financial regulators have become more assertive in recent months, cracking down in areas from online lending and insurance to initial public offerings and margin financing. Greater oversight of the private equity industry has already kicked off. China halted such funds from raising money to invest in residential property developments, people familiar with the decision said earlier this month.

“Private equity funds must return to the defined role of being private and supporting innovation and startups,” Yi said in the speech published on the CSRC website.