China Securities Regulatory Commission strengthens supervision of private equity investment funds

  Directly refers to the chaotic public offering and fund pool operation in disguise

  □ Our reporter Zhou Fenmian

  In order to improve the standard development level of the industry and protect the legitimate rights and interests of investors and related parties, the China Securities Regulatory Commission recently issued the "Regulations on Strengthening the Supervision of Private Investment Funds" (hereinafter referred to as the "Regulations"), which directly refers to the various chaos in the private equity industry .

The "Regulations" will come into effect on December 30, 2020.

  Following the Securities Investment Fund Law (hereinafter referred to as the Fund Law), the "Interim Measures for the Supervision and Management of Private Investment Funds" (hereinafter referred to as the "Interim Measures") and other laws and regulations, the "Regulations" have been further refined in light of the actual situation and are of great significance.

  Development and chaos coexist

  According to the relevant person in charge of the China Securities Regulatory Commission, since 2013 when private equity funds were under the supervision of the China Securities Regulatory Commission, the private equity industry has achieved rapid development. It is promoting the formation of social capital, increasing the proportion of direct financing, promoting technological innovation, optimizing capital market investor structure, and serving entities. Economic development and other aspects play an important role.

  As of the end of 2020, there are 24,600 private equity fund managers registered with the Securities Investment Fund Association, 96,800 private equity funds have been filed, with a management scale of 15.97 trillion yuan.

As of the third quarter of 2020, private equity funds and venture capital funds have accumulatively invested in 132,000 domestic unlisted and unlisted corporate equity, NEEQ corporate equity, and refinancing projects, forming 7.88 trillion yuan in equity capital for the real economy.

  While the private equity industry is developing rapidly, all kinds of chaos coexist.

These violations of laws and regulations include: publicly or disguised publicly raising funds, evading the requirements of qualified investors by means of multi-person gatherings, non-fulfilment of registration and filing obligations, illegal business development, intricate group operations, illegal fund pool operations, benefit transfer, and self-financing There are even violations of laws and regulations that seriously violate the interests of investors, such as embezzlement, misappropriation of fund property, and illegal fund-raising.

In recent years, typical risk events represented by the Fuxing family and the Jincheng family have had a major negative impact on the reputation of the industry and the benign ecology.

  Let the private equity industry truly return to its origins of "private equity" and "investment", and it has become a consistent voice in the industry.

  There are restrictions on recruiting objects

  The Fund Law clarifies that securities investment funds are divided into public offerings and non-public offerings.

The latter is a private placement and can only be raised from qualified investors.

  What is a qualified investor?

Professor of the School of Economics and Law of Northwest University of Political Science and Law strongly said that qualified investors are divided into individuals and units.

Qualified investors should have certain investment experience and risk tolerance, and the amount invested in a single private equity fund should be at least 1 million yuan.

As a unit, it must also have a net asset of no less than 10 million yuan; as a natural person, its financial assets should be no less than 3 million yuan or the average annual personal income of the last three years should not be less than 500,000 yuan.

These financial assets include bank deposits, stocks, bonds, fund shares, asset management plans, bank wealth management products, trust plans, insurance products, futures rights, etc.

  According to Ruan Wanjin, an investment and financing expert and a lawyer at the Bank of China Law Firm, in the sale of private equity funds, there is often a phenomenon that multiple people aggregate into one.

And this is a very typical illegal behavior.

According to the first paragraph of Article 6 of the "Regulations", private equity funds shall not directly or indirectly provide investors with conveniences such as multi-person pooling and capital lending to meet the requirements of qualified investors.

The phenomenon that many people aggregate into one in sales is rooted in the fact that some individuals fail to meet the threshold requirements of qualified investors and choose to “partner” investment with others and avoid the requirements of qualified investors.

Private equity funds can only be raised from qualified investors, which is a mandatory requirement in the Fund Law, which cannot be violated or circumvented.

  Ruan Wanjin said that in order to prevent circumvention, the "Interim Measures" also clearly stipulated that private equity fund managers or private equity funds invested directly or indirectly in private equity funds by pooling funds of most investors in the form of partnerships, contracts and other unincorporated persons. The sales organization shall thoroughly check whether the final investor is a qualified investor and calculate the number of investors together.

  Related to this is the question of the number of qualified investors.

Strongly speaking, there is a limit on the number of qualified investors for a single private equity product.

According to the “Interim Measures”, the cumulative number of investors in a single private equity fund shall not exceed the specific number prescribed by the Fund Law, Company Law, Partnership Law and other laws.

According to the Fund Law, there are no more than 200 qualified investors.

According to the company law, a limited liability company has a maximum of 50 people, a joint stock company has no more than 200 people, and a partnership enterprise has no more than 200 people.

Private equity fund managers shall not evade the restrictions on the number of qualified investors in laws and regulations for various reasons.

  Frequent non-registration

  Another phenomenon of violations that is common in reality is not registration or filing.

Strongly speaking, requiring the registration of fund managers and the filing of private equity funds is a statutory act clearly stipulated by the Fund Law.

The Securities Investment Fund Industry Association, as a statutory self-regulatory organization, is engaged in specific registration and filing management and is authorized by law.

  Ruan Wan Kam said that according to Article 2 Paragraph 2 of the "Regulations", private equity fund managers should complete their registration with the Fund Industry Association in accordance with the regulations before conducting private equity fund business activities such as fund raising and fund management for the first time.

It can be seen that private equity fund managers apply the registration system, and business without prior registration is not allowed.

  According to the third paragraph of Article 6 of the "Regulations", after the private equity fund has been raised, the private equity fund manager shall go through the filing procedures with the fund industry association in accordance with the regulations.

Private equity fund managers shall not manage private equity funds that have not been filed.

  Why should I register?

Liu Chunyan, associate professor of Tongji University Law School, explained that publicity, as a basic system of commercial law, has the effect of ensuring transaction order and transaction security.

Publicity can make all parties to the transaction, especially fund investors and fund holders, aware of the situation of fund managers and fund assets.

At the same time, private equity funds, which are part of the financial industry, are related to the national finance and financial services of the real economy. Therefore, publicity is conducive to strengthening the supervision of private equity funds by financial regulatory agencies.

Although private equity funds have developed in recent years, there are many behaviors that damage the interests of fund holders. Therefore, it is also necessary to strengthen financial supervision through publicity.

  Most prohibitive regulations

  There are 14 articles in the Regulations.

Ruan Wanjin analyzed that, with the exception of Articles 1, 2 and 13, and 14, the remaining ten articles are all prohibitive requirements for private equity fund managers and practitioners.

  In terms of investment business, the "Regulations" require that private equity fund managers shall not directly or indirectly engage in private lending, guarantees, factoring, pawning, financial leasing, online lending information intermediary, crowdfunding, over-the-counter fund management, etc. Conflicting or irrelevant business.

  The requirements for the capital contribution of private equity fund managers are: no proxy holdings, revolving capital contributions, cross-funding, too many levels, complex structures, etc., and no concealment of related relationships or delinking of related relationships to ensure that managers contribute Transparent.

  In terms of fundraising, the "Regulations" require that public communication media such as newspapers, radio, television, and the Internet, lectures, report meetings, analysis meetings, etc., and media such as announcements, leaflets, short messages, instant messaging tools, blogs, and e-mails are not allowed. Promote and promote to unspecified targets; orally, in writing, or through short messages, instant messaging tools, etc., directly or indirectly promise to investors to guarantee principal and return, including situations such as no loss of investment principal, loss of fixed proportion, or promise of minimum return.

  In addition, with regard to private equity fund managers and practitioners engaging in private equity fund business, more than a dozen "no"s were proposed.

Articles of prohibitive provisions are clear and specific to ensure the standardized operation of the private equity industry.