Study On Private Placement Fund And Its Legal Regulations And System

Private placement funds refer to the kind of investment fund that is collected from some organization investors and wealthy individual investors by means of non-public method, which can be exempted from registration in foreign countries but need to go through some non-strict registration procedures in China. Compared with public fund, in spite of the fact that both are collective investment and are under expert management, there exist obvious differences in collecting method, collecting target, information publication, promotion method, degree of supervision, operation mechanism, mobility, management cost and the relationship between the manager and fund and so on.Private funds have very strong vitality and develop quickly. Especially since 1990s, with the deepening of financial globalization and the innovation of various investment tools, American private funds have obtained extremely great development. The number and scale of private funds increase by 20% per year, which have already become one of the forces that develop fastest in American financial field. Up to now, there are at least 4,200 private funds in the United States, with the total capital of more than 3 hundred billion US dollars. Private funds have occupied a very important position in international financial market, becoming the predominating force in the market.In Chinese legal system there is no relevant laws regulating private funds. However, the scale of private funds that come into existence in the name of five types of investment companies totals 8 hundred to 9 hundred billion RMB, which may be rated as the largest "grey tribe" in China. As Chinese private funds develop totally on the basis of market demand, they have the characteristics of spontaneousness, flexibility, and underground, which basically operate according to the market principles. Private funds are managed and operated in the light of foreign relevant market principles and corporation management regulations, thus demonstrating the obvious characteristics of Chinese primary market.The development of private fund in China falls into three stages: from 1993 to 1997, underground private funds appeared in mainland China, with each fund around 50 million RMB; from 1997 to 1998 private funds developed into the second stage, with average scale of 100 million RMB and the largest fund no more than 1 billion RMB; since 1999, as comprehensive securities dealers, as a result of approval, can be engaged in capital management, be entrusted with the management of cash, bonds and listed securities, private funds develop quickly. During this period, each medium-sized funds have 500 million RMB, all private funds total 300 to 400 billion RMB. Due to theabsence of relevant laws, private funds are half legitimate and half illegitimate in China, mainly operating in the form of workroom, entrusted financing, contracted or corporate private funds and etc. Operating mechanism of each fund shows different characteristics. There are various causes for the appearance of private funds in China, mainly because of the market demand and supply relation. The absence of relevant laws leads to the following common problems: disorder in organization modes, lack of essential investment tools, illegal methods of attracting funds, insider dealings, manipulation of stock dealing and so on. All these add to the risks in stock market. Therefore, it is urgent to legislate for private funds and to guarantee the proper development of private funds within the framework oflcgal system.It is necessary to use the legal system of other countries for reference when legislating for private funds. The United States is the country where private funds first appeared and develop fastest, thus the legal regulations and the operation modes of American private funds should provide enlightenment to the legislation for private funds in China. In the United States Private funds are exempted from registration. Legal supervision of private funds mainly shows on the strict control of investors, that is, only the individuals...