Legal Trends in the Private Equity Fund Industry (April 2025/Issue 86)

2025-05-16 00:00:00 · Lawbridge

Legal Service Trends of State owned Assets and Funds Research Center 01 The first instance of the equity repurchase dis

Legal Service Trends of State owned Assets and Funds Research Center

The first instance of the equity repurchase dispute between a state-owned private equity fund represented by the lawyer team of Yang Chunbao and the founder of the invested enterprise was heard in the Shanghai Financial Court.

Lawyer Yang Chunbao and Lawyer Di Chaoping's team have been hired as legal advisors for Shanghai Zhuopu Investment Management Center (Limited Partnership).

The lawyer team of Yang Chunbao has been entrusted by a state-owned parent fund in Pudong New Area to provide full legal services related to its proposed participation in the establishment of a direct investment fund in the medical field, including conducting legal due diligence and issuing due diligence reports, reviewing and modifying the fund partnership agreement, and drafting ancillary agreements to the fund partnership agreement.

Yang Chunbao's legal team has been commissioned to assist a technology-based company and its founder in Shanghai in dealing with equity buybacks and capital reductions.

Lawyer Di Chaoping and Lawyer Yang Chunbao were invited by the Beijing Fund Industry Association to provide a series of training courses on compliance with state-owned assets and funds.

Various announcements and notices of the association

On April 11, 2025 and April 25, 2025, the China Securities Investment Fund Industry Association ("the Association") respectively issued announcements stating that nine private fund managers, including Guangdong Hongshi Fund Management Co., Ltd. and Shenzhen Hongshengtian Asset Management Co., Ltd., had abnormal operating conditions and failed to submit a special legal opinion in accordance with regulations within three months after the written notice was issued. The Association will cancel the registration of the private fund managers of these nine institutions.

Legal and Regulatory Developments

Notice of the State Administration of Financial Supervision and Administration on Matters Related to Major Equity Investments of Insurance Funds in unlisted Enterprises

On April 2, 2025, the State Administration of Financial Supervision and Administration of China issued the "Notice of the State Administration of Financial Supervision and Administration on Matters Related to Major Equity Investments of Insurance Funds in unlisted Enterprises" (hereinafter referred to as the "Notice"), which further regulates the major equity investment behavior of insurance funds in unlisted enterprises. The main content includes the qualification conditions that insurance institutions should meet when conducting major equity investments, the sources of funds, the scope of enterprises that can be invested in, and prohibited behaviors. In addition, the Notice clearly stipulates that insurance institutions conducting major equity investments shall apply for approval from the State Administration for Financial Regulation in accordance with regulatory requirements; We should establish and improve the decision-making process and authorization mechanism for equity investment, perfect the management system for equity investment, and strengthen internal control management; Provide guidance and supervision on the business planning, risk management, internal control compliance, and financial auditing of invested enterprises, strictly manage the financing scale and leverage ratio of invested enterprises, and regularly monitor liquidity risk, legal compliance risk, and reputation risk; Strengthen the management of related party transactions, control the quantity and scale of related party transactions with invested enterprises; The equity control level between insurance institutions and their financial subsidiaries shall not exceed three levels in principle, and the equity control level between insurance institutions and their non-financial subsidiaries shall not exceed four levels in principle.

The China Securities Regulatory Commission publicly solicits opinions on the "Measures for the Administration of Securities Investment Fund Custody Business (Revised Draft for Comments)"

On April 3, 2025, the China Securities Regulatory Commission issued a notice soliciting public opinions on the "Management Measures for Securities Investment Fund Custody Business (Revised Draft for Comments)". The main contents of this revision include:

(1) Improve the entry threshold. Strengthen the requirements for substantive business development capabilities and compliance risk control capabilities, including increasing net asset requirements, requiring commercial banks to have net assets of no less than 50 billion yuan, securities companies and other financial institutions to have net assets of no less than 30 billion yuan, etc;

(2) Strengthen the requirements for substantive business development and risk isolation supervision. At the application stage, the applicant is required to make a commitment to focus on their main responsibilities and business; Strengthen the isolation between fund assets and other custodial assets;

(3) Consolidate the trustee's responsibility. Require the custodian to take necessary measures to verify and verify the information and materials provided by the fund manager; Strengthen customer and product access requirements to avoid 'sick custody'; Clarify the application of "one trust to the end" and related custody requirements for private equity securities investment funds; Require fund custodians to fully disclose risks and not agree on supervision methods that prevent fund custodians from fully and effectively performing their duties; Strengthen the custodian's reporting obligations, settlement and delivery responsibilities, etc;

(4) Establish a sound exit mechanism. Add or improve three types of license cancellation situations, including failure to substantially expand business, failure to continuously meet admission conditions, and voluntary cancellation, and refine the connection arrangements after the termination of custodian responsibilities;

Allow high-quality custody institutions with leading custody services in the industry to establish wholly-owned subsidiaries specifically for conducting custody services.

The China Securities Regulatory Commission (CSRC) has revised

the "Regulations on the Regulatory Responsibilities of CSRC Dispatched Institutions"

On April 18, 2025, the China Securities Regulatory Commission (CSRC) issued the revised "Regulations on the Regulatory Responsibilities of CSRC Dispatched Institutions" (hereinafter referred to as the "Regulations"), which will come into effect on May 19, 2025. The revised "Regulations" require dispatched institutions to be risk and problem oriented, conduct risk monitoring and early warning for private fund managers, and strengthen cooperation with local governments in supervision, risk disposal, and other aspects in accordance with relevant regulations.

The association revised the "Implementation Rules for Clean and Honest Conduct

of Fund Management Institutions and Their Staff"

On April 11, 2025, the association released the revised "Implementation Rules for Integrity in Fund Management Institutions and Their Staff". The main content of this revision is as follows:

(1) In terms of improving the supervision mechanism for clean and honest practices, it is necessary to clarify the reporting obligations of all staff members of fund management institutions, and require fund management institutions to identify risks, discover problems, promptly rectify and implement accountability through smooth internal communication mechanisms.

(2) In terms of strengthening internal control management, we will strengthen the management of investment, appointment, and clean employment of personnel who have resigned from the China Securities Regulatory Commission system; Increasing typical non-standard financial behaviors such as false reporting of expenses and disguised payment of fees; Prevent staff from using insider information, undisclosed information, trade secrets, and customer information to transmit or seek improper benefits.

(3) In terms of refining the requirements for clean and honest practice in major businesses, the overall fund investment advisory business will be included in the management of clean and honest practice; Add requirements prohibiting the transmission or seeking of improper benefits through various means such as information leakage, transfer of stock pool maintenance and management permissions, and cooperation or acceptance of instructions from others to engage in trading activities; Incorporate fund liquidation into the management of clean and honest practices in the operation process; Incorporate performance evaluation, risk management, etc. into the management of clean and honest practices in business-related activities.

In terms of strengthening self-discipline management, we will resolutely punish fund operating institutions and their staff who engage in bribery or interfere with fund related work through bribery in the process of conducting fund business or business-related activities; Standardize self-discipline management and disciplinary measures.

The General Office of the Shanghai Municipal People's Government has issued

the "Several Measures to Promote the Development and Growth of Specialized,

Refined, Unique and New Small and Medium sized Enterprises in Shanghai"

On April 3, 2025, the General Office of the Shanghai Municipal People's Government issued the "Several Measures to Promote the Development and Growth of Specialized, Refined, Unique and New Small and Medium sized Enterprises in Shanghai", proposing to strengthen patient capital, give full play to the leading role of the National Small and Medium sized Enterprise Development Fund, the City's Three Leading Industry Mother Fund, the Industrial Transformation and Upgrading Fund, the Future Industry Fund, etc., introduce social capital investment, form a fund group with a total scale of not less than 100 billion yuan, increase direct investment in specialized, refined, unique and new small and medium-sized enterprises, and drive social capital investment in early, small, and hard technology.

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