Contents of the Measures for the Administration of Private Equity Funds (Draft)

The first private placement (PE) law, Measures for the Administration of Equity Investment Funds (Draft) (hereinafter referred to as the Measures), has been submitted to the State Council and is awaiting approval. The Measures clarified the policy orientation and basic regulatory framework for moderate supervision of PE industry. The promulgation of the Measures provides a basic blueprint for private placement. Judging from the overall reaction of the industry, the "Measures" have basically complied with public opinion and won the support of the industry. "From the industry characteristics that PE does not absorb public deposits and the overall scale is very small, it should not be regulated. But after all, China has its own national conditions, and moderate supervision is conducive to the development of the industry. For example, the national management department has unified regulations on qualified managers and institutional investors, which will attract more social funds and contribute to the development of this emerging industry. " An industry insider said this. In China's capital market supervision system, the focus of supervision is often on areas involving public interests. For private investment behavior, if it does not touch the legal red line such as illegal fund-raising, the regulatory agencies generally will not intervene. With the increasing popularity and influence of private equity funds, relevant departments have to start with macro-control of private capital. How much influence does private equity fund have on the market? Lawyer Xu of Beijing Dokot Law Firm said: "Large funds play a guiding and suggestive role in the behavior of small and medium-sized funds, and their investment direction is enough to affect the capital flow of the entire capital market; In addition, a large number of foreign hot money poured into China through private equity funds, resulting in abnormally high housing prices and inflation. If the behavior of the fund is not guided and standardized, it will definitely affect the normal operation of the entire national economy. " As early as a few years ago, a joint meeting of ten ministries and commissions was established in the State Council, consisting of the Small and Medium Enterprises Department of the National Development and Reform Commission, the Comprehensive Department of the Ministry of Finance and the Institutional Department of the China Securities Regulatory Commission. It is responsible for studying and formulating relevant issues of venture capital industry. However, many policies are contradictory. At the same time, the regulatory bodies of PE are scattered, and the regulatory agencies cannot reach an agreement on the industry standards and scope, which often leads to excessive supervision and regulatory vacuum. Lawyer Xu pointed out that the main theme of "moderate supervision" in the Measures embodies the principles of unified supervision, hierarchical supervision and self-discipline, which will undoubtedly help the capital market to move towards a safer, more systematic and effective coordinated development track while maintaining freedom and flexibility. Sports can't be kept in the greenhouse. Only by participating in market competition and survival of the fittest can we achieve an all-round improvement in capital operation level and risk prevention ability. Macro-control needs to be relaxed one by one, people need to tie the bell to solve the problem, and PE supervision needs to return to the market. This is the long-term solution. (1) Equity investment funds mentioned in these Provisions refer to non-securities investment funds (including industrial investment funds and venture capital funds, etc.). ) set up in a non-public way to make equity investment in unlisted enterprises and provide value-added services. Equity investment funds can take the form of corporate system, partnership system and other enterprise organizations according to law.

Equity investment fund management enterprises refer to enterprises that manage and operate equity investment funds.

Private equity investment fund management enterprises refer to investment management institutions that issue wealth management products with the help of trust companies, file with regulatory agencies, realize third-party bank custody of funds, and mainly invest in the securities market.

(2) These Provisions apply to domestic, overseas, Chinese and foreign equity investment funds, equity investment fund management enterprises and private equity investment fund management enterprises registered in this Municipality, and meet the following conditions:

The registered capital (contribution amount) of the equity investment fund is not less than RMB 500 million, and the mode of contribution is limited to monetary form, and the first-phase paid-in capital is not less than RMB 654.38+0 billion. Shareholders or partners shall contribute capital in their own names. Among them, the contribution of a single natural person shareholder (partner) is not less than RMB 654.38+million. In the form of a limited company or partnership, the number of shareholders (partners) shall not exceed 50; If it is established in the form of unlisted joint stock limited company, the number of shareholders shall not exceed 200.

An equity investment fund management enterprise established in the form of a joint stock limited company with a registered capital of not less than 30 million yuan; In the form of a limited liability company, the paid-in capital is not less than 30 million yuan.

The registered capital of private equity fund management enterprises exceeds 30 million yuan, and the assets under management exceed 654.38 billion yuan. (1) The relevant municipal departments provide convenience for the industrial and commercial registration of equity investment funds, equity investment fund management enterprises and private equity investment fund management enterprises.

(2) Equity investment funds and equity investment fund management enterprises may use the words "fund" or "investment fund" in their enterprise names.

(three) the company system, partnership equity investment funds, equity investment fund management enterprises, should be clearly stipulated in the articles of association or partnership agreement, and shall not publicly raise and issue funds in any way.

(4) The legal domicile (business premises) of the equity investment fund management enterprise undertaking management responsibilities can be registered as the legal domicile (business premises) of the equity investment fund enterprise. (a) the partnership equity investment fund and the partnership equity investment fund management enterprise do not take income tax as the main body, and adopt the method of "dividing income tax first", and the partners pay individual income tax or enterprise income tax respectively.

(II) Partnership equity investment funds and equity investment fund management enterprises, and natural person general partners shall carry out the partnership affairs of limited partnership enterprises, and pay individual income tax according to the item of "income from production and operation of individual industrial and commercial households" at the five-level progressive tax rate of 5%-35%.

A natural person limited partner who does not carry out the partnership affairs of a limited partnership enterprise shall collect personal income tax at a reduced rate of 20% according to the items of "income from interest, dividends and bonuses".

(3) The dividends, bonuses and other investment income obtained by the partnership equity investment fund from the invested enterprise belong to the after-tax income for which the enterprise income tax has been paid, and can be directly distributed to the legal person partners according to the partnership agreement, and the enterprise income tax shall be implemented according to relevant policies.

(four) the general partners of the partnership equity investment fund invest in shares with intangible assets and real estate, participate in the profit distribution of investors, share the investment risks, and do not levy business tax; No business tax is levied on equity transfer.

(five) equity investment funds and equity investment fund management enterprises have invested in unlisted small and medium-sized high-tech enterprises for more than 2 years (including 2 years) by means of equity investment. Those who meet the requirements of the Notice of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on Preferential Income Tax for Venture Capital Enterprises (Guo Shui Fa [2009] No.87) can deduct the taxable income of enterprises according to 70% of their investment in small and medium-sized high-tech enterprises. (1) Since the implementation of the Regulations, newly registered equity investment funds can enjoy the following policies:

Equity investment funds established in the form of company system shall be given a one-time settlement reward according to their registered capital scale; For equity investment enterprises or management enterprises that have not been approved by the State Council or the competent state departments, a one-time financial subsidy shall be given according to their registered capital and accumulated paid-in capital and their equity investment activities within one year after registration. Among them, if the registered capital or accumulated paid-in capital is more than 654.38 billion yuan (including 654.38 billion yuan), the subsidy is 654.38 billion yuan; If the registered capital or accumulated paid-in capital is more than 500 million yuan (inclusive), the subsidy will be 8 million yuan; If it exceeds 654.38 billion yuan (inclusive), the subsidy will be 5 million yuan. (a) standardize the development of equity investment fund industry associations, and give full play to the role of industry associations in strengthening industry self-discipline management.

(2) Actively introduce professional equity investment fund rating agencies, promote the establishment of equity investment fund evaluation system in a market-oriented way, and guide the standardized and healthy development of equity investment funds.

(three) the relevant departments of the city should strengthen the supervision and management of the equity investment fund industry, risk early warning and disposal, and crack down on all kinds of illegal fund-raising activities in the name of equity investment funds according to law.

Multi-party promotion

In the context of the current international financial crisis, both US dollar PE and RMB PE are facing enormous obstacles and challenges.

"It can be said that all investors have never encountered such a severe situation." Yan Yan, chief partner of Safran Fund, said.

Shao Bingren said in his previous speech that the economic downturn may be a good time to promote policy formulation.

The promulgation of the draft "Measures for the Administration of Private Equity Funds" may be the result of this promotion.

In terms of laws and regulations, the current situation is that it is extremely difficult for US dollar PE funds to invest in domestic enterprises.

At the end of 2005, Circular No.75 issued by ten ministries and commissions banned the overseas red chip listing of enterprises. Previously, the usual practice of these US dollar PE funds was "two heads are outside", that is, enterprises set up a shell company in Cayman and other regions, and then the shell company purchased the equity of the enterprise in China through capital contribution, and PE funds invested in this shell company, and finally listed overseas through this shell; Now this road has come to an end, because it is impossible for shell companies to buy shares in domestic enterprises.

The background of "Circular 75" is that after inspecting Brazil and other countries, the regulatory authorities believe that all domestic high-quality companies will go public overseas, which will lead to the loss of high-quality enterprises and the nationals will not be able to share the relevant growth.

However, the regulations make it impossible for many dollar funds to operate projects according to the original path. Subsequently, some US dollar PE funds began to try to convert US dollars into RMB to set up joint ventures in China, and then prepared to withdraw from the A-share listing, which was also feasible in practice.

According to Guo Weifeng, a partner of Jin Nuo Law Firm, after this situation lasted for more than a year, safe issued a new document around September this year. According to this document, there is no way to make a simple model of converting the above-mentioned US dollars into RMB to set up a joint venture company in China. "Although the path is not completely blocked in theory, it will have a certain normative effect on the industry in the long run."

But in fact, according to this newspaper, a foreign-funded fund registered in Tianjin is already applying for liquidation materials. "They are not going to do it, because it is very difficult to do it now. The original project can't go on, and the subsequent dollars can't get in." A local financial industry person familiar with the situation revealed.

Even after withdrawing from A-shares, fund management institutions are faced with many problems, such as the taxation of the income remitted abroad.

Therefore, some well-known management institutions that originally operated US dollar funds, such as CDH and Hongyi Investment, began to raise RMB funds. After a year or so of contact, social security finally invested 2 billion yuan in each of the two companies. According to this newspaper, it is necessary and necessary for social security to invest in commercial PE, and a state-owned institution must have invested in it; For example, Hony Capital is invested by Legend Holdings, and CDH is another Chinese prefix enterprise.

Many private equity investment institutions without state-owned enterprise partnerships have been passed by social security funds.

In addition, due to the turbulence and uncertainty of the economic environment, many private enterprises and individuals who promised to pay failed to honor their promises, and other reasons, RMB funds also have financing difficulties.

According to Cao Wenlian, director of the Finance and Economics Department of the National Development and Reform Commission, at a meeting, some large institutional investors "have difficulty in raising funds for industrial funds because some regulatory authorities have doubts about financial institutions that invest in LP ("limited partners ")".

In fact, whether it is an industrial fund or a commercial PE, "the lack of qualified LP is an important problem to be faced" is the unanimous view of many PE investors in the public forum.

The development of domestic PE has become "passive water" under the current situation: on the one hand, the progress of US dollar investment is very slow, on the other hand, there are few sources of RMB funds, which makes many investment institutions quite headache.

The promulgation of the Measures for the Administration of Private Equity Funds may be an opportunity for them.

Classified supervision

But things are far from simple.

A person in charge of a PE organization said that to promote the development of the domestic PE industry, it needs the coordination of multiple government departments. "Ask every department, they all say they support the development of PE, but nothing has changed."

In such a difficult situation, PE's joint self-help to promote policy formulation has become a top priority for the industry.

China PE Association, which is under preparation, came into being to promote the development of the industry. Hony Capital, CDH, Houpu and other PE institutions have all joined and participated in the discussion of relevant management measures.

Shao Bingren, head of the preparatory group of China PE Association, revealed, "We discussed with the National Development and Reform Commission, hoping to work out some big frameworks. The first is to solve the problems of insurance and bank funds entering the PE field to become LP, but the specific amount and proportion allowed to enter, whether it needs approval, how to supervise and so on. It needs to be specifically formulated by the China Insurance Regulatory Commission and the China Banking Regulatory Commission because they have regulatory responsibilities. "

Yan Yan, the chief partner of Safran Fund, believes that whether insurance and bank funds should be allowed to invest in PE funds to become LP depends on "the lack of qualified industry talents in China at present".

Some people in the industry are worried that once the investment of these institutions is liberalized, many relevant people will set up institutions to ask for money. Therefore, "it is very important for these financial institutions to choose a good GP".

Shao Bingren believes that the management measures stipulate what kind of general practitioners are qualified, and it is impossible for any industry to have enough talents at the beginning and need a development. It cannot be said that there will be no development without talents. "Some capable people will naturally concentrate in good industries. Learn, squeeze out some bubbles, and good management institutions will come out. "

Yan Yan pointed out that, according to foreign experience, management talents with past performance standards will be invested, but the current situation in China is like this. If there are too few general partners ("general partners") whose performance has reached the standard in the past, when these LPs invest in some new general partners, they can set up a management committee above the general partners, so that some people with real industry experience can serve them, rather than those who only know the theory but have no practical experience, thus reducing the risk of controlling the operation of funds.

He Xiaofeng, a professor at Peking University, suggested that industrial funds and private equity investments should be supervised in different categories, including sovereign wealth funds of China Investment Corporation, funds set up by China government and foreign institutions such as China and Belgium, industrial funds such as nuclear power funds, and guiding funds of local governments.

In his proposal, another private equity investment fund is a market-oriented financial tool, which is an important difference from industrial investment funds. It covers venture capital, mature enterprise investment, pre-listing investment, merger and reorganization funds, and professional (such as real estate) investment funds. They can take the form of limited partnership, corporate system and trust system.

He believes that the advantage of classified supervision is that it can avoid the disadvantages of administrative supervision, such as "unification will die, and once it is released, it will be chaotic", which is also conducive to avoiding the possible adverse consequences of "one size fits all".