Investment strategy
Feedback
The LPA stipulates that without the consent of the joint meeting, the limited partnership shall not provide guarantees for others in the name of the limited partnership, and the manager is requested to verify whether the ** is an external guarantee, if so, according to the "Several Provisions on Strengthening the Supervision of Private Investment", the proportion and time limit of the relevant provisions of the guarantee in the LPA shall be clearly agreed by amending the ** contract or signing a supplementary agreement; If not, the administrator is requested to issue a letter promising that it will not engage in external guarantee-related business.
Interpretation:
Article 45 of the Measures for the Registration and Filing of Private Investment** issued by AMAC stipulates that venture capital** shall not use leveraged financing. Therefore, the external liabilities, guarantees and pledges of the partnership involved in the scope of investment are suspected of using leveraged financing and are prohibited by the regulator.
In addition, the "Several Provisions on Strengthening the Supervision of Private Investment**" issued by the China Securities Regulatory Commission stipulates that private placement ** may provide loans and guarantees for the invested enterprises within one year for the purpose of equity investment in accordance with the contract, and the maturity date of the loan or guarantee shall not be later than the exit date of the equity investment, and the balance of the loan or guarantee shall not exceed 20% of the paid-in amount of the private placement**. In addition, there is currently no exemption clause on external loans or guarantees for private placement**, so if the above-mentioned matters related to the provision of loans and guarantees for the invested enterprises are involved, they also need to be clearly stipulated in the partnership agreement, including the proportion and time limit of the loans and guarantees.
Nesting
Feedback
If so, specify the specific proportion and details of the proposed investment, and make it clear that if it is agreed in the contract to invest in other ** or asset management products, it will not involve credit bonds or pledged agreement repurchases; If it does not involve the strategy of investing in other products, please delete the relevant target in the investment scope.
Interpretation:
According to the Regulations on the Supervision and Administration of Private Investment, "the investment level of private placement shall comply with the regulations of the financial management department." However, if the conditions stipulated by the regulatory authority are met, the private placement of the main property invested in other private placements will not be included in the investment level". According to the current association's caliber, it is not clear that the type of FOF that can be exempted from nesting 2 layers cannot be regarded as a situation that can be exempted.
**The main points of concern when filing include:
1. Excessive nesting, that is, there are more nested layers penetrated upwards (total number of layers 3), or only one layer penetrated upwards (total layers = 2), but the investment scope includes asset management products, and it may continue to be invested. Currently, the ICP filing cannot be approved.
2. The investor has private placement (especially other ** and non-FOF classes managed by the manager itself, that is, the filing type is ** class instead of ** class FOF), which is easy to be regarded by the association as a shell and occupy a pit, and may be required to sort out the transactions of "help funds";
3. Intensive issuance of FOF products, in view of some risk events of current FOF products. Intensive issuance of FOF products is sometimes fed back to sort out the stock of the target.
4. Even if the investor does not have an asset management product and the investment scope has an asset management product, the association may still require the manager to promise not to invest in bonds after penetration (in the past, it was limited to bond managers).
The starter**
Feedback
Please explain the reasons for the discrepancies between this and the proposed preparation of the business plan**.
Interpretation:
If the manager fails to file a self-issued private placement** within 12 months after registration, it will face the risk of being deregistered by the association. It is recommended that the newly registered manager issue the first product as soon as possible after the registration is approved, so as not to affect the subsequent business.
When reviewing the first product, AMAC will confirm whether the first product is in line with the business plan in the business plan by comparing the details of the first product in the business plan and the proposed investment direction of the applicant.
This feedback from AMAC does not mean that all elements must be consistent with the business plan. Where there is a reasonable reason for this, the elements may be inconsistent. However, the investment target should be consistent with the proposed investment direction of the business plan, and the investment performance of the investment leader, as one of the souls registered by the manager, determines the feasibility of the business development plan to a certain extent, and the manager should avoid the situation that the performance of the investment person in charge hired is inconsistent with the company's proposed investment direction. If there is a discrepancy between the subsequent investment target and the business plan, the Association may question the manager's ability to conduct due diligence on the investment target.
Regarding the initial offering**, in addition to the above-mentioned investment direction consistent with the company's business direction, private equity managers are also reminded to pay attention to the following two points:
1. The initial offering must be issued by the manager independently, not an investment advisory product, nor can it be changed from the name of other private equity managers, which are not recognized by the AMAC.
2. The investors of the first public offering must be mainly external investors, managers, employees, shareholders, related parties, and even relatives of executives, etc., may be considered by the AMAC as insiders, if these personnel or institutions account for a relatively large proportion of funds, the manager will most likely receive feedback from the AMAC, requiring increased external fundraising.
Performance-based compensation
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According to Article 19 of the Filing Guideline No. 1, the interval between two consecutive accrual of performance remuneration for private placement*** shall not be less than 6 months. When the investor redeems the ** share or the performance remuneration is calculated at the time of the liquidation of the private placement, it may not be subject to the restriction of the aforementioned interval. Please verify and complete the ** contract.
Interpretation:
According to Article 19 of the Filing Guidelines No. 1, the accrual of performance remuneration shall match the duration of the private placement, the distribution of income and the characteristics of investment operation, and a single private placement can only adopt one method of accruing performance remuneration to ensure fair treatment of investors. The proportion of performance remuneration shall not exceed 60% of the investment income above the benchmark for performance remuneration. The interval between two consecutive accrual of performance remuneration shall not be less than 6 months. When the investor redeems the ** share or the performance remuneration is calculated at the time of the liquidation of the private placement, it may not be subject to the restriction of the aforementioned interval.
AMAC encourages investors to not accrue performance remuneration during the period of holding ** shares, and to accrue performance remuneration based on the net value of the investor's redemption of shares or ** liquidation. If the private equity manager accrues performance remuneration for the part of the performance exceeding the accrual benchmark in accordance with the accrual ratio, time point, frequency and accrual method agreed in the contract, it shall be premised on the investor obtaining positive returns, except that the following conditions are met at the same time:
1) Set the benchmark for performance remuneration to a certain index with the goal of obtaining index-based excess returns, and adopt an investment strategy that closely monitors the index; (2) Performance remuneration shall only be accrued when the investor redeems or liquidates; (3) In a conspicuous position in the fundraising promotion materials and ** contracts, it is clearly reminded that investors may accrue performance remuneration in the event of losses.
According to Article 20 of the Filing Guidelines No. 2, the accrual of performance remuneration for private equity ** shall be clear and reasonable, and shall be linked to the actual performance of **, and shall not adopt the method of accruing interest on similar deposits such as 100% accrual above a specific benchmark.
It is suggested that private equity managers can set differentiated performance remuneration ratios for investors with different share categories, but even among investors with different share classes, the performance remuneration accrual method and basis should be the same. Investors of the same share category must adopt the same kind of performance remuneration accrual rules among themselves, and no differential remuneration shall be carried out, otherwise it will be deemed to be "unfair treatment of investors" and will be subject to penalties and regulatory measures by relevant authorities.
Parallel**
Feedback
Could the manager please issue a letter to explain whether it has disclosed information to investors regarding the establishment of parallel ** and the possibility that parallel ** will be withdrawn from the project in the future and at different times?
Interpretation:
According to Article 25 of the Filing Guidelines No. 2, before the established private equity investment** has completed the investment of 70% of the subscription scale (including reasonable reservation for the payment of ** taxes), unless it is unanimously agreed by all investors or approved by the decision-making mechanism approved by all investors, the private equity manager shall not establish a new ** investment strategy, investment scope, investment stage, investment geography, etc., which are substantially the same as the aforesaid **.
Parallel** is a relatively complex product design, which will have a greater impact on the interests of investors. Therefore, private equity managers should fulfill relatively strict information disclosure obligations when they intend to adopt a parallel ** structure.
At present, the manager is only required to disclose the parallel arrangement to the investor in the promotion link (Article 14 of the Administrative Measures for the Information Disclosure of Private Investment** provides that during the private placement period, the following information shall be disclosed to the investor in the publicity and promotion materials (such as the prospectus): (1) the basic information of the **: the name, the structure (whether it is a mother and child, whether it is parallel**), and does not perform the obligation to disclose the situation during the operation and management of the parallel **.
In view of the strict conflict of interest in parallel**, in order to ensure the effective implementation of the parallel investment strategy, the GP is also required to disclose the execution of the parallel investment strategy on a regular basis when the parallel investment strategy is adopted. or if LP is concerned that GP may not strictly implement the parallel investment strategy, it has the right to request GP to disclose information on the implementation status.
Temporary Open House
Feedback
According to Article 12 of the Filing Guidelines No. 1, the contract shall clearly stipulate the change procedures to be performed when adjusting the investment scope or investment proportion restrictions, and set up a temporary open day to allow investors to redeem. Pursuant to Article 22, if there is a change in the information provided for in the first paragraph of this Article, the private placement manager shall disclose to investors and take measures to set up temporary open days or other measures to protect investors' rights to redeem private placements, unless the changes are beneficial to investors. Please verify and complete the ** contract.
Interpretation:
According to Article 11 of the Filing Guidelines No. 1, private placements shall clearly stipulate the operation modes such as closed-end and open-ended. The contract of an open-ended private placement shall set a fixed open day to clarify the time, frequency, procedures and restrictions of investors' subscription (subscription) and redemption. Without obtaining the consent of the investors in accordance with the contract, the private placement manager shall not change the time, frequency, procedures and restrictions of the investors' subscription (subscription) and redemption without authorization.
Private placements may set up temporary open days, and clearly stipulate in the contract that the trigger conditions for temporary open days are limited to the adjustment of laws, administrative regulations, regulatory policies, contract changes or terminations, etc., and the arrangements of temporary open days shall not be used to handle subscriptions. The private placement** manager shall notify all investors 2 trading days before the temporary opening date.
Not ICP Filing**
Feedback
This **Special Investment Venture Capital** Partnership (Limited Partnership), whether it is to be recorded**, if so, please indicate when it will be recorded.
Interpretation:
According to the current regulatory provisions, private placement managers are not allowed to manage unrecorded. Under normal circumstances, most of the unfiled management cases occur in the primary market, especially for partnerships in which the private equity manager serves as the GP.
In day-to-day business, we often see a special kind of partnership that acts as a "special purpose vehicle", or SPV for short. Article 22 of the Provisions on the Operation and Administration of Private Asset Management Plans of Operating Institutions points out that asset management plans that invest exclusively in the equity of unlisted enterprises may indirectly invest in the equity of unlisted enterprises through special purpose vehicles. The special purpose vehicle shall be a company or partnership that directly invests in the equity of an unlisted enterprise as the underlying asset, and shall not undertake the function of raising funds, and shall not receive management fees and performance remuneration.
If a private equity manager can indirectly invest in the underlying assets through an SPV when designing the structure, this type of SPV does not need to be filed as a private placement, because it does not raise funds from outside and does not charge management fees and performance remuneration. In practice, the SPV is generally a partnership, with core personnel such as the manager or actual controller serving as the GP, and the LP being the one that has been filed.