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Yet another scam in China's fund management sector leaves investors

Yet another scam in China's fund management sector leaves investors

Yet another scam in China's fund management sector leaves investors scrambling to recoup close to US$1 billion

hanghai-based asset management group PGA Venture Partners has suspended operations after failing to repay investors 6.6 billion yuan (US$967 million), the latest sign that the mainland's finance sector is plagued by scams and frauds.

No employees showed up at the company's office in Jiangchang Road, Jingan district, on Thursday. The Post could not reach the company or its officials by phone.The company, also known as Yung Park Capital, said in a statement posted on the website that media reports about its operations were untrue and it reserved the right to take legal action., a financial news portal, reported that PGA had failed to repay investors their money invested in wealth management products since August 2018.The defaults resulted from the short-term wealth management funds the company offered to the public with guaranteed investment returns, laohucaijing said.

Two private equity fund managers, who declined to be identified, said that short-term wealth management products with guaranteed returns were not areas of PGA's expertise.

PGA became well-known in China's finance industry for a clutch of investments placed through private equity and venture capital funds in successful technology businesses such as WuXi AppTec, the mainland's leading biotechnology firm which completed an A-share initial public offering last year.

Private equity and venture capital funds have long-term gestation periods and usually do not come with guaranteed returns.

Its key management team includes veteran investment professionals such as Huang Yan, a former department chief at Shanghai government's investment conglomerate Guosheng Group, and Qian Xudong, who used to be the chief manager of Standard Chartered Bank's branch in China.

"PGA is the latest example that China's finance sectors still carries huge risks, although the authorities are stepping up oversight of problematic investment platforms," said Ding Haifeng, a consultant with Shanghai-based Integrity Financial Consulting. "It is yet another rude reminder to individual investors that they should not just look at the returns the fund managers offer when making investments."

Over the past two years, thousands of online peer-to-peer (P2P) have either collapsed or faced krackdowns by police for defrauding investors.

P2P is technically a matchmaker between individual borrowers and lenders, collecting service fees from the transactions.

But thousands of mainland P2P operators promised depositors lofty annualised interest of up to 20 per cent to illegally raise funds before relending the money to other cash-hungry businesses in a de facto loan sharking scheme.

The slowing economy and stringent regulations on financial institutions have dragged the growth of China's private equity and venture capital sectors.

Last year, 79 new yuan-denominated private equity funds were launched in China, raising some 90 billion yuan, a sharp fall of 85 per cent from 2017, according to global consultancy Bain & Co.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.

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