New private placement regulations promote the industry to further "implement" and "innovate"

Source: Economic Information Daily Author: Luo Yishu Xie Bilu

The Regulations on the Supervision and Administration of Private Investment Funds (hereinafter referred to as the Regulations) came into force on September 1. "My experience over the past week is that handling business more clearly and normatively is helpful for the long-term development of the industry in general," a private equity practitioner told the Economic Information Daily.

Industry insiders said that the Regulations are intended to encourage the private equity industry to develop in a standardized and healthy manner, better protect the legitimate rights and interests of investors, and further play the role of serving the real economy and promoting scientific and technological innovation.

More clear guidance on key links

"At present, the market and the industry have a positive attitude towards the promulgation of the Regulations." Another private equity practitioner told the Economic Information Daily reporter, "I think the implementation of the Regulations will help to improve the business order and industry transparency of private investment funds, and will also be more conducive to protecting the legitimate rights and interests of investors. However, some market participants said that some business operation processes and specific requirements need time to adapt and adjust, which is good for private equity funds with strong investment and research capabilities. "

The Regulations were promulgated on July 9 of this year and officially came into force on September 1. Reviewing the development history of private equity industry regulation, it has been more than ten years. In 2012, the Securities Investment Fund Law was revised to include private securities funds under supervision, but not private equity venture capital funds. In 2013, the Central Committee organized and issued the Civilized Private Equity Venture Capital Fund, which was supervised by the CSRC. In order to further clarify the regulatory requirements and solve the problem of the lack of superior law for private equity venture capital funds, the CSRC submitted to the State Council in 2013 to initiate the formulation of the Regulations. On June 16, 2023, the Executive Meeting of the State Council deliberated and adopted the Regulations.

In terms of content, the Regulations consist of seven chapters and 62 articles, focusing on five aspects: first, the scope of application of the Regulations is clarified; Second, clarify the obligations of private fund managers and custodians; Third, standardize fund raising and investment operation; Fourth, special provisions have been made for venture capital funds, and the state has given policy support to venture capital funds to encourage and guide them to invest in growing and innovative entrepreneurial enterprises; Fifth, strengthen supervision and management and legal responsibility.

Give full play to the role of service entities

It is worth noting that while the Regulations regulate the development of the industry and delimit the regulatory bottom line, they also focus on giving full play to the role of the private equity industry in serving the real economy and supporting scientific and technological innovation.

"On the one hand, the Regulations firmly implemented the decision and deployment of the CPC Central Committee and the State Council on preventing and resolving major risks and maintaining financial security, focused on key subjects such as managers, controllers and partners in the industry, focused on key links such as fund raising and investment operation, comprehensively standardized the requirements for the whole process of fund raising and investment operation, and specified the requirements for sustainability." At the 2023 Global PE Forum held on September 4, Wang Jianping, director of the Second Market Supervision Department of the CSRC, said that, on the other hand, the Regulations clearly stated that the state encourages the private equity industry to develop in a standardized and healthy manner, play a role in serving the real economy and promoting scientific and technological innovation, and emphasize the role of the private equity industry in serving the real economy and supporting scientific and technological innovation, Fully gather consensus of all parties and jointly optimize the development environment of private equity industry.

In fact, the role of encouraging the private equity industry to "serve the real economy, promote scientific and technological innovation and other functions" is reflected in many places in the Regulations. For example, private equity funds represented by venture capital funds have played an important role in "investing in early and small investment technology" in recent years. In order to support and encourage the development of venture capital funds, the Regulations specify in the general provisions that the venture capital funds are subject to classified supervision, and set up a special chapter for venture capital funds. Clarify the conditions that venture capital funds should meet in terms of investment scope, investment period, contract strategy, etc., and strengthen the coordination of regulatory policies and development policies for venture capital funds.

At the same time, the Regulations implement differentiated supervision and self-discipline management on venture capital funds in terms of registration and filing, fund raising, investment operation, risk monitoring, on-site inspection, etc., and facilitate the exit of venture capital funds that are mainly engaged in long-term investment, value investment, and transformation of major scientific and technological achievements. Next, relevant departments will further study and introduce specific policies and measures to support the development of venture capital funds.

"This setting of the Regulations provides convenience for venture capital funds, which are mainly engaged in long-term investment, value investment and transformation of major scientific and technological achievements, in terms of investment exit and other aspects." Tian Lihui, vice president of Guangxi University and president of the Institute of Financial Development of Nankai University, told the Economic Reference Daily that private equity funds effectively form equity capital and effectively serve the real economy. Since the reform of the registration system, most listed companies have received support from private equity funds before listing. In the process of achieving high-quality economic development in the new era, China urgently needs to further develop private investment funds to promote the incubation and growth of more "invisible champions" and specialized new enterprises.

Promote long-term high-quality development of the industry

In recent years, in the process of rapid development, the private equity industry has also faced problems such as insufficient supply of laws and regulations, low threshold for industry access, and weak awareness of compliance risk control of some institutions. Illegal acts and risk events have occurred from time to time. In the opinion of insiders, the promulgation and implementation of the Regulations will help regulate the development of the private equity industry, better protect the legitimate rights and interests of investors, and achieve long-term high-quality development of the industry.

A private equity practitioner told the reporter that the Regulations proposed a standardized process of "management and withdrawal of raised investment", aiming to create a more fair, transparent and effective investment environment, protect the rights and interests of investors, which will help to enhance industry confidence. In the "fundraising" stage, the Regulations have increased the requirements for information disclosure, and the relevant fundraising behavior will also be subject to stricter supervision and management of the market and supervision. In the "investment" stage, the Regulations put more emphasis on the responsibilities of fund managers, which is more conducive to improving the operating efficiency of private funds. In the "management" stage, the Regulations further clarified the responsibilities and obligations of fund managers, and emphasized the importance of safeguarding the legitimate rights and interests of investors. In the "exit" stage, the Regulations not only protect the rights and interests of investors, but also contribute to the stability and sustainability of fund operation by establishing a reasonable exit mechanism and process.

"The Regulations clearly define the functions of the private equity industry, such as serving the real economy and promoting scientific and technological innovation, and exempt private equity funds with reasonable demand for business expansion from a layer of nested restrictions on the basis of existing rules, promoting the optimization of the development environment of the private equity industry and promoting the cultivation of long-term institutional investment. At the same time, the Regulations The establishment of a special chapter for venture capital funds, the encouragement of 'early investment in small investment technology', and the implementation of differentiated supervision and self-discipline management have promoted the development of venture capital funds. " Tian Lihui said that on the whole, the Regulations summarized the experience and lessons learned from the development of China's private equity industry over the past decade, filled the gap in the supervision of private equity funds, optimized the legal system of private equity funds, and promoted the rapid and healthy development of China's private equity industry in the rule of law and standardization.

The follow-up construction of private equity industry development environment is still ongoing. Wang Jianping introduced that the CSRC is working with relevant departments to further promote and optimize the development environment of the private equity fund industry, unblock all links of "raising investment, management and withdrawal", strive to solve the long-standing institutional and institutional problems in the industry, and promote the high-quality development of the private equity fund industry to a new level.

key word: Private securities regulations Private Offering Fund private equity Risk event