Zhang Yang

    nicolezyyy@163.com

    CHINA’S fast-growing hedge fund industry will face more stringent oversight as regulators introduced new rules to regulate a vast industry sometimes embroiled in fraud, insider trading and market speculation, according to a public lecture held in Shenzhen on Tuesday.

    China’s hedge funds have attracted increased scrutiny from regulators amid explosive growth of the industry over the past year and fears the country’s relaxed registration-based licensing regime has allowed fraudsters and shadow lenders to proliferate.

    Private fund registrations more than doubled in 2015 to hit nearly 25,000, according to data from the Asset Management Association of China (AMAC), a self-regulatory body that oversees China’s private investment funds.

    Roughly two-thirds of these are “phantom” fund managers that have not launched a product and may be using the registration for illegal fundraising or lending, said the AMAC.

    While many “phantom” funds may have done nothing illegal, the AMAC license, a requirement for operating a hedge fund, has often been used as cover for fraudulent peer-to-peer lending platforms, industry insiders say. Some fraudsters also raise money upfront for bogus funds that are never launched.

    Last month on the eve of the Chinese New Year, the AMAC said it was raising the bar with new risk management and qualification requirements.

    There would also be penalties for tardy information disclosures and an obligation for new fund managers to obtain a legal opinion endorsing their operations — all with immediate effect.

    Jing Jia, a manager at a Guosen Securities Co. outlet, considered the new measures introduced by the AMAC “very important” for the domestic hedge fund industry.

    “The new rules prove to be a challenge as well as opportunities for hedge fund managers, as a better regulated industry can emerge stronger and better,” Jing said.

    Qin Zheng, a partner and senior lawyer at Yingke Law Firm, said the new rules would play an important role in avoiding improper practices by hedge fund operators such as setting up shell companies or illegal fundraising.

    Shenzhen has seen rapid growth in hedge funds in recent years, with the number of such funds reaching 5,161 by the end of last year, according to the latest figures released Monday by the Shenzhen city government.