The Financial Supervisory Commission yesterday gave the green light for securities investment trust and consulting (SITC) firms to manage and operate private equity funds, in a bid to attract investment into projects such as “green” energy and infrastructure to boost the economy.
While investment funds operated by SITCs are limited to listed securities seeking capital gains, private equity funds directly invest and participate in the management of projects such as power stations, airports and other infrastructure, the commission said.
Under the new rule, SITCs will be able to acquire stakes in those projects and appoint or recommend third-party managers to investees’ management teams, the commission added.
To manage risks, private equity funds are to be structured as a limited partnership composed of a general partner and a limited partner, the commission said, adding that the arrangement is commonly seen in the international market.
The general partner is to be represented by a new subsidiary formed by the SITC and tasked with managing and investing the fund’s capital committed by limited partners — which are public and private companies, such as pension plans, insurers and high net worth individuals, the commission said.
However, private equity funds are still subject to Financial Consumer Protection Act (金融消費者保護法), which stipulates that such fund products cannot be promoted through general advertising services, the commission said.
Domestic banks and insurers are estimated to have NT$2 trillion (US$66.18 billion) and NT$300 billion respectively in investable capital.
The commission said that it would begin reviewing applications by SITCs tomorrow, with JPMorgan Asset Management Taiwan Ltd (摩根資產管理) and Cathay Securities Investment Trust (國泰投信) having expressed an interest in this field.
In response to the government’s Forward-looking Infrastructure Development Program, JPMorgan Asset Management in April announced plans to launch a NT$9.1 billion private equity fund denominated in New Taiwan dollars for institutional investors.
The fund is expected to yield a rate of return of 6 to 7 percent, while offering investors fixed dividend returns of 3 to 6 percent, JP Morgan Asset Management said.
Solar and wind power projects have an investment duration of 20 to 25 years, and institutional investors must commit to minimum investments of eight to 10 years, it said.
Separately, the commission said that it has begun investigating possible irregularities that led to the departure of JPMorgan Asset Management chairperson Judy Shih (石恬華).
The investigation was prompted by a probe into the company by its US-based parent regarding accounting irregularities related to employee training programs and excursions, the commission said, without elaborating.
Preliminary findings showed that the Taiwan unit had inflated its expense reports and had spent the difference on other activities, including sponsorships without authorization, the commission said.
Operators of offshore investment funds are prohibited from providing cash and other incentives to its sales channels, the commission said.
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