Circular on Matters Relevant to the Establishment of Insurance Private Equity Funds

1. Insurance capital may be used to establish private equity funds, their scope including growth funds, buyout funds, emerging strategic industry funds, mezzanine funds, immovable property funds, venture capital funds as well as funds of funds that have the foregoing as their main investment targets.

2. Where insurance capital is used to establish a private equity fund, the investment orientation shall be key industries and sectors supported by the state, including but not limited to major infrastructure, squatter settlement improvement, new urbanization construction and other such people's livelihood projects and major state projects; scientific and technological enterprises, micro and small enterprises, strategic emerging industries and other such key enterprises and industries supported by the state; and senior care services, health and medical services, security services, internet financial services and other such industries and business patterns compatible with the direction in which the insurance industry chain is extending.

3. Where insurance capital is used to establish a private equity fund, the promoter and fund manager shall be determined in advance. The names of the promoter and fund manager, the senior management personnel and the major shareholders and de facto controller may not be changed indiscriminately. Where a change is genuinely necessary, the relevant provisions shall be complied with and the decision-making procedure shall be carried out.

4. Where insurance capital is used to establish a private equity fund, a subordinate organization of the insurance asset management institution shall serve as promoter, which shall have the major responsibility for promoting and establishing the private equity fund, determining the fund manager, safeguarding the interests of investors and bearing legal liability. It is the medium that engages in investment business by way of a private equity fund.

The promoter shall, by virtue of system design, clearly define the boundary between its rights and responsibilities and those of the relevant insurance asset management institution so as to ensure independent operation as legally defined. It shall clearly define rights and responsibilities with investors by way of a contract so as to ensure that the insurance risks are fully disclosed.

5. The promoter may serve as the fund manager or, alternatively, the insurance asset management institution or a subordinate organization of the insurance asset management institution designated by the promoter may do so, and it shall have major responsibility for the raising of funds, investment management, information disclosure, fund divestment and other such matters. It is the private equity fund's investment management organ.

6. Where insurance capital is used to establish a private equity fund and an insurance asset management institution is to serve as the fund manager, it shall have the appropriate investment management capabilities and not fewer than three actual investment projects.

7. Where insurance capital is used to establish a private equity fund and a subordinate organization of an insurance asset management institution is to serve as the fund manager, it shall satisfy the following conditions:

(1) the equity in the subordinate organization held by the insurance asset management institution and its affiliated insurance institutions accounting for more than 30% in total;

(2) having a stable management team, with not fewer than three core decision makers who have at least eight years of relevant experience; and the team members having completed not fewer than three divestment projects in total;

(3) having independent and market-oriented management operation mechanisms, including but not limited to an equity incentive mechanism, benefit sharing mechanism and co-investment mechanism; and

(4) other prudential conditions as specified by the China Insurance Regulatory Commission (CIRC).

8. The fund manager may engage professional firms to provide relevant services, including a custodian, investment consulting firm, offering agency, law firm and accounting firm. The foregoing firms shall comply with the relevant provisions of the Tentative Measures for the Investment of Insurance Capital in Equity.

9. A private equity fund established with insurance capital shall satisfy the following conditions:

(1) the anticipated investment in a reserve project for which the proposal has been approved covering at least 20% of the proposed offer size;

(2) the capital contributions or subscribed for amount of the promoter and its affiliated insurance institutions may not be less than 30% of the proposed offer size;

(3) having a dedicated investment management team and, during the investment period, having not fewer than three dedicated investment management officers with at least three years of relevant experience;

(4) having expressly specified the investment strategy, investment method, investment sector, investment restrictions, joint investments, investment concentration, investment procedure, decision-making procedure, post-investment management, divestment mechanism, etc.;

(5) having established an investment advisory committee consisting of the major investors that focuses on dealing with matters such as affiliated transactions, conflicts of interest; and

(6) having established a custody mechanism and the custodian satisfying the specified conditions.

Neither the insurance asset management institution nor its affiliated insurance institutions may provide security for the private equity fund, nor may they give investors in the private equity fund an undertaking as to the investment returns of the private equity fund or to the effect that they will compensate for investment losses.

10. The establishment of a private equity fund using insurance capital shall be subject to a registration system. Once the establishment plan has been deliberated on and approved by the relevant decision-making body, the insurance asset management institution or fund promoter shall carry out the relevant procedures with the CIRC or its designated agency. Where a newly established promoter or fund manager is involved, matters shall be handled in accordance with relevant provisions of the Tentative Measures for the Investment of Insurance Capital in Equity.

11. Where insurance capital is used to establish a private equity fund, it can be offered to insurance institutions and other qualified investors. When insurance capital is invested in such a fund, the investment percentages shall comply with relevant provisions of the China Insurance Regulatory Commission, Circular on Strengthening and Improving the Oversight of the Percentages for the Application of Insurance Capital.

12. Where insurance capital is used to establish a private equity fund and investment matters involve an affiliated transaction, the votes of at least two-thirds of the non-affiliated parties in the decision-making body shall be required for approval, and the transaction may only be carried out if the investment advisory committee has no objection. The investment may not exceed 50% of the size of the fund offer.

13. Where insurance capital is used to establish a private equity fund, the fund manager shall, within 5 working days after completion of offering of the fund, within 20 working days after the end of each quarter and by April 30 of each year, submit to the information registration platform designated by the CIRC a report on the results of the offering, a quarterly report, an annual report and other relevant information.

If, during the life of a private equity fund, a circumstance such as a change in the promoter or fund manager, a change in the core decision-making team, a material risk in fund management or other material contingency arises, the fund manager shall report the same to the CIRC and carry out the procedures for amending the registered particulars in accordance with provisions in a timely manner.

14. Where insurance capital is used to establish a private equity fund, and the promoter, the fund manager or a core team member of the fund commits any of the acts set forth below, the CIRC shall record its improper conduct in its file:

(1) the operation of its corporate governance, management systems, decision-making procedure or internal control mechanisms is non-compliant, giving rise to material potential risks;

(2) its management team fails to act with due diligence and fails to perform its investment management duties in accordance with laws, regulations and the contract;

(3) it fails to duly handle a material contingency;

(4) it fails to truthfully, accurately, completely and timely disclose investment risks to investors in accordance with provisions;

(5) it fails to truthfully, accurately, completely and timely report relevant matters to the regulator in accordance with provisions; or

(6) it commits another act that violates a relevant law, a set of administrative regulations or this Circular.

Insurance capital may not be invested in a private equity fund promoted and established by an institution or individual on the list of those with a negative record.

15. Where insurance capital is used to establish a private equity fund, relevant rules and regulations, and industry self-regulation provisions shall be complied with and such fund shall submit to oversight.

16. Where insurance capital participates in the promotion and establishment of a private equity fund and is invested in the same, and the equity in the fund manager held by the insurance asset management institution and its affiliated insurance institutions accounts for less than 30% in total, matters shall be handled in accordance with the relevant provisions of the Tentative Measures for the Investment of Insurance Capital in Equity.

17. Where insurance capital is used to establish a private equity fund and the funds raised in China are to be invested in offshore markets, matters shall be handled with reference to this Circular, and if there are separate provisions, the same shall be complied with.

18. This Circular shall be effective as of the date of issuance. In the event of a discrepancy between relevant policies and this Circular, this Circular shall prevail.