The Asset Management Association of China (AMAC) has published tighter rules for the country’s hedge fund sector, including an increase in the minimum asset threshold as well as new restrictions on the use of derivatives and leverage, according to report by Bloomberg.
Under the new “operational guidelines” which are in effect a toned down version of pervious draft proposals, private securities investment funds now need to raise at least RMB10m at initial set up, and maintain minimum of RMB5m in assets or face liquidation.
The new rules, which are set to take effect from 1 August, also cap both total leverage and borrowing through equity-related total return swaps at 100%, while also limiting exposure to derivatives like “snowballs” to 25% of a fund’s net assets.
The new guidelines come on the back of clampdown by regulators earlier this year on trading by some quantitative funds amid plunging markets.
According to the AMAC, which is supervised by the country’s securities regulator, some smaller managers have been found to lack discipline and have harmed investors’ rights.
In a statement on 30 April, the AMAC said: “It’s necessary that regulation and management are strengthened to promote the stable and healthy development of the industry.”
