Qualified Domestic Limited Partner (QDLP) Overseas Investment Pilot in Hainan

Chinese title: 海南省开展合格境内有限合伙人(QDLP)境外投资试点工作暂行办法

Issuing authorities:

• Hainan Provincial Local Financial Supervision Administration

• State Administration of Foreign Exchange (SAFE) Hainan Branch

• Hainan Administration for Market Regulation

• China Securities Regulatory Commission (CSRC) Nansha Regulatory Bureau

Document No.: 琼金监〔2021〕37号
Date of issue: 8 April 2021
Status: In force
Geographical scope: Hainan Province (with key implementation in Hainan Free Trade Port)

1. Policy Overview

To implement the Overall Plan for the Construction of Hainan Free Trade Port, promote financial sector opening-up, and regulate outbound investment by qualified domestic investors, Hainan has launched a Qualified Domestic Limited Partner (QDLP) overseas investment pilot.

Under this pilot:

• Qualified domestic investors (QDLPs) can participate in offshore investments through Hainan-registered pilot funds;

• Pilot fund management enterprises and QDLP funds must be registered and effectively operated in Hainan;

• A quota-based, balance-management system is applied to outbound investment.

The pilot work is carried out under the direct leadership of the Hainan Provincial Government, with the Hainan Local Financial Supervision Administration taking the lead.

2. Key Definitions

• Qualified Domestic Limited Partner (QDLP)
  Domestic natural persons, institutional investors, or other investors defined in these Measures who use their own funds to subscribe to pilot funds and meet the suitability standards set out in Chapter 4.

• Pilot Fund Management Enterprise
  A domestic or foreign-invested enterprise that:

  • Is registered and actually operating in Hainan Province;

  • Has been jointly recognised by the relevant pilot authorities;

  • Has as its main business the initiation and management of pilot funds and their overseas investment activities;

  • Meets the conditions specified in Chapter 2.

• Pilot Fund
  A fund set up in Hainan Province by a pilot fund management enterprise, with participation by QDLP investors, whose fund assets are invested overseas in accordance with these Measures and the applicable laws and regulations, and which meets the requirements in Chapter 3.

Pilot fund managers and pilot funds may be set up in company, partnership, or contractual form.

3. Governance and Participating Authorities

Pilot work is organised as follows:

• Hainan Local Financial Supervision Administration (lead)

  • Handles day-to-day pilot work;

  • Receives and reviews applications;

  • Organises joint review with other departments;

  • Approves pilot qualification and grants investment quotas to pilot fund managers;

  • Coordinates and resolves issues arising in implementation.

• SAFE Hainan Branch

  • Manages cross-border capital flows, FX registration, and related matters under these Measures.

• Hainan Administration for Market Regulation

  • Handles business registration for pilot fund managers and pilot funds.

• CSRC Nansha Regulatory Bureau

  • Guides registration/filing of pilot fund managers and pilot funds with the Asset Management Association of China (AMAC);

  • Supervises business activities of pilot fund managers and pilot funds that have completed AMAC registration/filing.

• Provincial Development and Reform Commission & Provincial Department of Commerce

  • Advise on whether investment targets and regions fall into sensitive categories for outbound investment.

Other relevant departments cooperate as needed.

The first batch of pilot enterprises is determined by the Provincial Government. Subsequent pilot enterprises are jointly approved through meetings organised by the Local Financial Supervision Administration with SAFE, Market Regulation and CSRC.

4. Pilot Fund Management Enterprises

4.1 Types

Pilot fund management enterprises include:

• Domestic pilot fund management enterprises;

• Foreign-invested pilot fund management enterprises, where overseas individuals or institutions participate in their establishment.

They may be organised as companies or partnerships.

4.2 Permitted business activities

Pilot fund management enterprises may:

1. Initiate and establish pilot funds;

2. Manage investment activities of pilot funds under mandate and provide related services;

3. Conduct investment advisory business in accordance with law.

4.3 Qualification requirements

A pilot fund management enterprise must meet, among others, the following conditions:

1. Registered capital

   • Not less than RMB 5 million (or equivalent in foreign currency);

   • Contributions must be in cash only;

   • Paid in full as agreed in the articles of association/partnership agreement, or within two years from obtaining pilot qualification (whichever is earlier).

2. Core investment team

   • At least one key investment manager with 5+ years’ experience in overseas investment management and relevant professional qualifications;

   • At least two other key investment managers with 3+ years’ overseas investment management experience and relevant qualifications;

   • No violation records or unresolved economic litigation cases for core investment managers in the past 5 years.

3. Shareholder / controller conditions (industry experience)

   • Among the controlling shareholder, actual controller, managing partner, or their related entities, at least one must:

     • Be a financial institution approved by its home regulator to engage in investment or asset management, holding the appropriate license; or

     • Be a fund management enterprise with good investment performance and AUM not less than RMB 100 million (or equivalent).

4. Shareholder / controller conditions (capital and compliance)

   • Among the same group of entities described above, at least one must:

     • Have net assets not less than RMB 10 million (or equivalent);

     • Have good asset quality;

     • Have at least 3 years of experience in asset management (onshore or offshore);

     • Have a sound governance structure and internal control system;

     • Have no major penalties from its home regulator in the last year;

     • Have no major cases under investigation by judicial or regulatory authorities.

5. Existing domestic managers

   • For existing domestic fund managers, they must already be registered with AMAC as private fund managers and have completed filing for at least one private fund.

6. Other prudential requirements

   • Any additional conditions specified by the Local Financial Supervision Administration based on prudential principles.

5. Pilot Funds

5.1 Legal forms

Pilot funds may adopt company-type, partnership-type, or contractual-type forms.

5.2 Basic conditions

Pilot funds must meet, among others:

1. Size & contributions

   • Committed capital / initial fundraising scale not less than RMB 30 million (or equivalent);

   • Contributions must be in cash only.

2. Investor eligibility

   • Investors must meet the QDLP suitability standards in Chapter 6;

   • The number of investors must comply with relevant laws and regulations on private funds.

5.3 Permitted overseas investment scope

Pilot funds may, using fund assets, invest overseas in:

1. Equity and bonds of unlisted overseas enterprises;

2. Shares and bonds of listed overseas enterprises via non-public issuance and transactions;

3. Overseas securities markets, including financial instruments traded on such markets;

4. Overseas equity investment funds and securities investment funds;

5. Overseas commodities and financial derivatives;

6. Other areas approved by relevant national authorities.

Where laws, regulations, or normative documents on outbound investment require filing or approval, the relevant procedures must be followed, and any more restrictive CSRC/AMAC rules prevail.

6. Qualified Domestic Limited Partners (Investor Suitability)

6.1 Basic thresholds

A Qualified Domestic Limited Partner (QDLP) must:

• Have sufficient risk identification and risk-bearing capacity; and

• Invest at least RMB 1 million (or equivalent) in any single pilot fund,

and meet one of the following:

1. Institutional investors

   • Legal persons with net assets not less than RMB 10 million.

2. Individual investors

   • Individuals with financial assets not less than RMB 3 million, or

   • Individuals whose average annual income over the last three years is not less than RMB 500,000.

“Financial assets” include: bank deposits, stocks, bonds, fund units, asset management plans, bank wealth management products, trust products, insurance products, futures equity, etc.

6.2 Investors deemed qualified

The following may be deemed QDLPs:

1. Social security funds, enterprise annuities and other pension funds, charitable funds and other public welfare funds;

2. Asset management products that have been filed in accordance with law;

3. Fund managers and their staff investing in the funds they manage;

4. Other investors recognised by the CSRC.

If investment in a pilot fund is made through a partnership or contractual structure that pools multiple investors’ funds, the pilot fund manager must look through to the ultimate investors to verify whether they are QDLPs and must aggregate investor numbers accordingly.

However, for investors that fall into items (1), (2) or (4) above, the manager does not need to look through to the underlying investors nor aggregate their numbers.

QDLPs must ensure their investment funds are from legal sources and must not illegally pool others’ funds to invest in pilot funds.

6.3 Suitability management obligations of fund managers

Pilot fund management enterprises must:

• Conduct full know-your-customer (KYC) on investor identity, assets/income, investment experience, risk appetite and investment objectives;

• Provide targeted risk disclosures, client training and investor education, guiding clients to understand the characteristics and risks of overseas markets before investing;

• Establish and implement specific suitability policies and operating procedures;

• Clearly communicate suitability requirements through multiple channels and explain them to clients;

• Properly keep all records related to suitability management and respect confidentiality of investor information;

• Designate personnel to handle complaints, log and manage disputes, and report complaint handling to the Local Financial Supervision Administration.

Pilot fund managers and pilot funds must not guarantee principal or returns. QDLPs must sign risk disclosure statements. Funds must be raised only from qualified investors, and:

• The total number of qualified investors must not exceed statutory limits;

• Funds must not be raised from non-qualified investors or unspecified members of the public.

7. Establishment and Approval Process

7.1 Pilot qualification and quota

• For the first batch of pilot fund managers and funds:

  • The Local Financial Supervision Administration receives full application materials;

  • SAFE, Market Regulation, CSRC, Development and Reform, and Commerce departments jointly review;

  • They assess professional capabilities, private fund track record, overseas investment strategies, and practical capital needs;

  • The Local Financial Supervision Administration proposes the first batch pilot list and initial outbound quotas, and submits them to the Provincial Government for approval;

  • After approval, written opinions are issued, confirming pilot qualification and quotas.

• For subsequent applications:

  • The same departments jointly review;

  • Based on professional strength, track record, strategies, and project needs, they decide whether to grant pilot status and an outbound investment quota;

  • The Local Financial Supervision Administration issues written approval and quota confirmation.

7.2 Application materials

Applicants for pilot fund management enterprise status must submit, among other things:

• Pilot application letter;

• Corporate registration documents;

• Articles of association/partnership agreement;

• Internal control systems (accounting, audit, risk control, disclosure, etc.);

• AMAC registration/filing records (for existing domestic managers);

• Statement of no major penalties or investigations in the past year;

• Information on legal representative, key management and investment staff;

• Audit reports and proof of asset management background, regulatory licenses, performance and AUM for relevant entities;

• Proposed fund project plan and total size;

• Other documents required on prudential grounds.

Applicants for pilot funds must submit, among other things:

• Offering or marketing documents (PPM, term sheet);

• Fund articles/partnership agreement/contract;

• Management agreements, if any;

• Supporting documents proving that all investors meet QDLP criteria and have signed risk disclosure statements;

• Documents for any appointed administrative manager;

• Capital commitment letters;

• Other documents required on prudential grounds.

Originals plus multiple copies must be provided, with originals stamped with official seals.

7.3 Registration and filing

After receiving written pilot approval and quota:

• The pilot fund manager and pilot fund must register with the Hainan Administration for Market Regulation;

• They must then complete registration/filing with AMAC as a private fund manager and private fund.

Newly established pilot fund managers and funds must:

• Within 30 calendar days after registration, report to the Local Financial Supervision Administration and provide business licences, constitutional documents, management and custody agreements (including any agreements between onshore and offshore custodians), and copy SAFE and CSRC;

• Within 30 calendar days after capital is fully paid in, provide proof of paid-in capital.

8. Custody, FX and Outbound Investment Flow

8.1 Onshore custodian requirements

Pilot fund managers must appoint one domestic bank or qualified financial institution in Hainan as custodian. The custodian must:

• Have designated FX bank status, securities investment fund custody qualification, and RMB business qualification;

• Have minimum paid-in capital of RMB 3 billion (or equivalent) at head-office level;

• Have sufficient staff familiar with onshore/offshore custody;

• Have the ability to safe-keep assets and settle transactions safely and efficiently;

• Have sound internal audit and risk-control systems;

• Have no major penalties from regulators and no major investigations in the past three years;

• Have no serious violations of FX or cross-border RMB rules in the past three years;

• Meet other prudential conditions.

8.2 Custodian responsibilities

The domestic custodian must, among others:

• Open dedicated accounts for the pilot fund and safe-keep fund assets;

• Handle cross-border receipts/payments and FX settlement/sale in compliance with BOP reporting and FX rules, keep documents for inspection;

• Ensure full segregation between its own assets, other custodial assets, and the pilot fund’s assets;

• Process clearing and settlement of fund assets in accordance with laws and agreements;

• Supervise the investment operations of the pilot fund manager and ensure investments follow laws, regulations and agreed mandates;

  • If any instruction or fund transfer is suspected to be in violation, promptly report to SAFE and copy the Local Financial Supervision Administration, Market Regulation and CSRC;

• Maintain records of cross-border transfers, FX trades, and transactions for at least 20 years;

• Perform other duties set by trial authorities on prudential grounds.

8.3 FX registration and dedicated accounts

After obtaining pilot qualification and outbound quota:

• The pilot fund manager must apply to SAFE for FX registration, submitting:

  • Application letter;

  • Written pilot approval and quota letter;

  • Business licence (if applicable);

  • AMAC registration/filing status (if applicable);

  • Any required outbound investment approvals/filings from outbound investment authorities.

Once FX registration is complete:

• The manager may open dedicated custodial accounts for pilot business;

• All pilot-related accounts must be included within the custodian’s scope and be under its monitoring.

The dedicated custodial account may receive:

• FX and RMB from domestic QDLP investors (including RMB funds after FX purchase);

• Redemption and liquidation proceeds, proceeds from share conversion or capital reductions;

• Profits, dividends, interest and other current-account income;

• Other income permitted by SAFE.

The account may pay out:

• Funds remitted overseas for permitted investments;

• Funds settled in FX or directly transferred to domestic QDLP accounts (or dedicated fundraising settlement accounts);

• Relevant taxes and fees;

• Other payments permitted by SAFE.

Pilot funds may invest overseas using FX purchased or directly using RMB via the dedicated custodial account.

The custodian must review whether an investment falls within the permitted scope, and where outbound investment approval/filing is required, must verify the relevant documentation before remitting funds overseas.

9. Enterprise Quotas and Balance Management

Outbound investment quotas are managed on a balance basis:

• For each pilot fund management enterprise, the net outward investment (in RMB and FX combined) from all its pilot funds (excluding dividends, taxes and profits under current account items) must not exceed the enterprise’s approved outbound investment quota.

• Managers may establish multiple pilot funds and flexibly allocate outbound quota among them, provided that the sum of fund-level quotas does not exceed the enterprise-level quota.

• There is no hard cap specified for the quota of a single manager or for a single project. However, if a manager does not use its quota within 11 months after obtaining pilot qualification and quota, the Local Financial Supervision Administration may notify it that if the quota remains unused for a full year, it may cancel pilot qualification and revoke all quotas. Any future business would require a fresh application.

• If subsequent renewals or additional investments cause the approved quota to become insufficient, the manager must apply for an additional quota.

• Funds raised under the QDLP pilot must be invested overseas. The pilot quota may not be used for investments within mainland China.

10. Information Disclosure and Reporting

10.1 Information disclosure

Pilot fund managers, custodians and any administrative managers are information disclosure obligors and must:

• Fulfil disclosure obligations throughout fundraising and operation in accordance with laws, regulations, normative documents, these Measures, and the agreements with QDLP investors;

• May disclose NAV and related data in RMB, USD or other major currencies;

• Where currency conversion is involved, disclose the FX rate source and maintain consistency;

• Use the PBoC (or authorised institution) central parity rate on the last valuation day of the reporting period for RMB vs major FX;

• Clearly state in offering documents:

  • Investment strategies and tools used;

  • Fee arrangements with any overseas funds;

  • Use of leverage, margin financing or repos, including leverage ratios;

  • Key risks of investing in overseas markets (market, regulatory, liquidity, FX, interest rate, derivatives, operational, accounting, tax, settlement, legal risk, etc.);

  • Proxies and procedures for voting and related documentation.

Disclosure documents must be provided in Chinese; if a foreign-language version is also provided, both must be consistent, and Chinese prevails in case of discrepancy.

10.2 Ongoing reporting

• Pilot fund managers must, within 20 working days after each calendar year, submit to the Local Financial Supervision Administration:

  • Reports on fund balance changes, FX settlement/sale, and overseas investment;

  • Annual reports including major changes and audit reports.

• If the following events occur, managers must report in writing to the Local Financial Supervision Administration within 15 working days:

  1. Amendments to key contracts, articles, or partnership agreements;

  2. Changes in senior management or core investment management personnel;

  3. Dissolution or liquidation;

  4. Other matters requested by the Local Financial Supervision Administration.

• Managers must also, within 10 working days after each quarter, report to SAFE and the Local Financial Supervision Administration on:

  1. Capital inflows/outflows and FX settlement/purchase;

  2. Basic investment information, including investment types, NAV, use of funds, and sources of domestic fundraising.

Custodians and administrative managers must promptly report to the Local Financial Supervision Administration any major issues related to asset custody or violations by fund managers. If violations are not rectified within the prescribed period, pilot qualification and quota may be revoked and penalties imposed. Violations that constitute crimes are referred to the judiciary.

11. Supervision and Enforcement

• After registration/filing, the Market Regulation authority provides real-time business registration data via the provincial information-sharing platform to relevant pilot departments.

• Authorities explore mid- and post-event supervision, using financial technology (including blockchain) to strengthen risk management, while ensuring data security and confidentiality.

• Pilot fund managers and funds that violate these Measures may be ordered to rectify within a time limit; if not, violations may be publicly disclosed and handled jointly with other authorities in accordance with law. Criminal cases are referred to judicial authorities.

These Measures apply throughout Hainan Province and are interpreted by the Hainan Local Financial Supervision Administration, which may adjust provisions jointly with other pilot departments based on implementation.

Effective date: from date of issuance (8 April 2021).

12. Responsible Department and Contact Information

Lead Department:
Division II of Local Financial Supervision,
Hainan Provincial Local Financial Administration

• Official website: http://jrj.hainan.gov.cn/sjrb

• Office address: Office 947, 9th Floor, Hainan Provincial People’s Government Office Building

• Email: jgec_sjrj@hainan.gov.cn

• Contact number: 0898-65341609

13. Frequently Asked Questions (FAQs)

1. Can a QDLP fund manager be set up outside Hainan, with only the QDLP fund established in Hainan?

No. The Hainan QDLP pilot requires “double landing”:
both the QDLP fund manager and the QDLP fund must be established in Hainan. Enterprises that have not yet set up a private fund manager in Hainan must first establish one in Hainan before they can apply for QDLP pilot qualification.

2. What happens if a firm’s pilot quota is fully used?

Hainan’s QDLP pilot adopts a dynamic quota management mechanism. Enterprises that have made fuller use of their existing quotas may apply for additional pilot quotas, subject to joint review and approval.

3. What preparations are important when applying for QDLP pilot qualification in Hainan?

The key step is the joint review and roadshow:

• Applicant enterprises should present in detail:

  • Assets under management;

  • Overseas investment and research experience;

  • Track record of overseas investments;

  • Investment research team;

  • Proposed investment projects and strategies;

  • Fundraising channels;

  • Internal control and risk management systems.

They should also be prepared to answer questions from the joint review units on all of these aspects.