Unlike authorized offshore funds which can be distributed via diversified routes, private placement of offshore funds is limited to qualified investors and the investment scope is confined.
Under the Rules Governing Offshore Funds, private placement of offshore funds are entitled be offered to qualified investors, i.e. Banks, bills finance enterprises, trust enterprises, insurance companies, securities enterprises, financial holding companies, and other juristic persons or institutions approved by the Financial Securities Commission (“FSC”). In each private placement fund, there are not more than 99 private investors with below qualifications: (i) A nature person with net assets exceeding USD1 Million or more, or (ii) A juristic persons or fund with total assets in the latest CPA audited or certified financial statements of NT$50 Million or more, or trust property.
Domestic private placement of an offshore fund by an offshore fund institution shall have the nature of a securities investment trust fund. The scope of investment shall be consistent with the following: (1) The offshore fund must mainly invest in securities and shall not invest in gold, commodity, real estate and relevant derivative products. (2) The funds linked to a feeder fund shall have the nature of securities investment trust funds.
Asset Size of Domestic Private Placement Funds is making a comeback
The domestic private placement funds started in January 2005. Initially the private placement funds were majorly tailor-made for specific corporate or High Net Worth investors, and the local SITEs utilized their in-house capabilities to execute sophisticated instruments to target at absolute returns. There were some private placements of offshore funds, the feeder of offshore fund, but not many. Over the past 15 years, the assets accumulated from this private placement scheme scaled up to USD1,849 Million in Nov 2006; the total industry AUM was trimmed down to hit its all-time low USD 365Million in end of 2014. Started from financial crisis in 2008, investors were losing confidence then private placement fund were not active nor favored by investors anymore. The AUM were less than USD1,000 Million for years. In end of 2015, the overall asset under management of private placement funds soared up. However, resources claim that the surge does not arise from the demand of offshore funds; instead, certain local asset managers may tailor-make the private placement for big clients to invest into certain target objectives. For example, the largest two SITEs offering private placement funds, Mega SITE and Fuhwa are mainly driven by its strong direct sales team to collect big asset from large private clients. As of March 2020, there are total 18 SITEs offering private placement funds. Mega and Fuhwa SITE account for more than 65% of the market shares.
Exhibition 1 : Ranking of Private Placement fund houses (as of March 2020)
In Jan 2018, FSC lifted the investors numbers of each private placement fund from 35 to 99, to pursue better fund AUM growth and to motivate the business intention of custody institutions. We moved up the industry AUM by 11% in a single year. We heard more and more interests and demands of the private placement of offshore funds from the banking side in recent years, basically due to 1) private placement funds are not limited to the prolonged reporting timeline and tight schedule of banks and SITEs 2) high-net-worth or corporate clients like unique strategies to offer absolute returns.
Exhibition 2: Historical Private Placement Fund AUM (as of March 2020)
Average size of private placement fund is scaling up
Over the years, the fund numbers of private placement funds do not see obviously increase. Compared to the numbers in the peak time in 2007, the overall quantity of private placement funds is even below half of that in its golden time. However, the average size of the funds soared up dramatically from the level of USD10 Million to USD20 Million for now. In the most recent two years, we are informed confidentially from certain Taiwan banks that the fund size could be up to USD30 Million sometimes.
Exhibition 3 : Average Size of Private Placement Funds (as of March 2020)
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