An economic identity card for the private fund industry, and the good news it signals

On 7 May 2018 the Asset Management Association of China published the Notice on Bringing Online the Credit Information Report Function for Members Managing Private Securities Investment Funds (Zhong Ji Xie Zi [2018] No. 71, the notice), under which, from that date, members managing private securities investment funds may consult their own credit information reports each quarter through the association's comprehensive reporting platform for asset management business (the AMBERS system, https://ambers.amac.org.cn). On 12 January this year the association had already published the Working Rules for Credit Information Reports of Members Managing Private Securities Investment Funds (trial), in the hope of recording members' credit standing comprehensively across four dimensions — compliance, stability, professionalism and transparency — so that member institutions may rely on their own commercial credit to determine their development, the industry may weed out the weak and the strong may thrive, and its vitality be released. Bringing the reporting function online is the first step in carrying out the national strategy for building credit, establishing a system of credit files and credit reports for members managing private funds, and constructing the basic framework for accumulating credit in the industry; the same function for members managing private equity funds and other private funds will come online soon.

It should be noted that the notice provides expressly that a member's credit information report may not be used for public marketing, though a member may, as it sees fit, provide its own report to the counterparties it works with on a one-to-one basis, and any such use must comply with the laws, regulations and self-regulatory rules restricting the marketing and promotion of private funds.

For investors, the arrival of the reporting function is undoubtedly good news, since they may ask a member managing private securities investment funds for its report. On the one hand it helps achieve transparency and symmetry of information. Asset management is a highly complex business and investors find it very hard to understand a fund manager and how a fund operates. The report covers four dimensions — compliance, stability, professionalism and transparency — and fixes fifteen indicators, five for compliance, four for stability, three for professionalism and three for transparency, showing in tables and radar charts where the member stands in the industry range on each. It thus presents a relatively full moving picture of the institution's basic position and the standard of its fund operations each quarter. The truth, accuracy and completeness of the report are also assured: the association requires every member to ensure that the information it reports is true, accurate and complete, and where a matter is concealed, or the information or materials contain false statements, misleading statements or material omissions, the association will, once it discovers this, suspend that member's report for a year, take the relevant self-regulatory measures against the institution and its principal officers according to the circumstances, and record the matter in its credit file.

On the other hand, as the new rules on asset management are fully rolled out and implemented, investment by private funds is becoming more regular and more professional, and investors' awareness that they bear their own risk is deepening. Investors must also learn to control risk themselves and take the initiative to understand a manager and the way its funds operate, and the credit information report is an instrument that helps them to judge and to decide. Minton advises investors at large to ask private fund managers for their credit information reports.

For the industry itself, the regular updating of the reports helps to reduce, to some degree, the repeated due diligence carried out by private fund institutions and their counterparties, improves investment efficiency, lowers unnecessary cost, and strengthens the confidence of institutional investors such as banks, insurance funds and pension funds in choosing private funds as investments.

In the longer term, bringing the reports online and spreading their use will guide private fund managers to concentrate on regular and professional investment operations, to value their own credit, and to internalise the requirements of law, regulation and self-regulation in their daily management and investment operations. By steadily accumulating credit and improving their capacity to run funds, they will achieve sustained and high-quality development as a whole, and will naturally attract more investors, gain more opportunities to work with professional domestic and foreign institutions, grow further in scale and secure a place in the industry.