On The Private Equity Fund

The private equity fund has developed rapidly in the main developed countries all over the world. It is the principal element in today's world capital market and has become an indispensable investment and financing way in economic development of each nation. It has been playing a more and more important role in the economic field. The private equity fund started in 1990s in China's Mainland. Since it has developed for only a few years, it is still in the primary stage both in operation and theory. Plenty of evidence demonstrates that so far the private equity fund has not obtained its legitimate status, which affects its operation, supervision and development. So it is high time we found solutions to the problems.In fact the private equity fund is a kind of innovative products of trust. By analyzing its legal relationship, intension and epitaxy, it can be drawn a conclusion: that the private equity fund is a kind of investment funds, which can be only supplied by private offering for the investors who have special investment experience or do not need the government's particular protection. As well, the substantial number of the investors should be strictly restricted.In U.S.A. there are three legal norms constituting a system independently and connectively to adjust the issue market of private equity fund. It can be established an appropriate legal system to adjust the issue market of private equity fund in China's Mainland by learning from foreign countries.There are still a lot of problems in raising in the practice of China's private equity fund, so it is necessary to standardize it. It can be considered to restrict the investors, to standardize the capital source, to restrict the advertisement, to standardize the raising means and fund managers, etc.It is mainly influenced by three factors to choose the operation model as follows: Firstly, the legal restriction on private equity fund; Secondly, the restraint by investors' special demands; Thirdly, the influence by the range of investment and investment tactics. By comparing and analyzing three types of private equity funds (private contract equity fund; private company equity fund; private limited partnership equity fund), it is easy to find that the latter two have obvious advantages. According to the practical situation in China's Mainland, it is considered to develop the private equity fund by dividing the operation model into several steps: At the earlier step, in order to encourage the development of private equity fund, it is better to endow more autonomy to fund managers, especially to encourage the development of private company equity fund and private limited partnership equity fund tendentiously; In the later step, when the condition is at time of maturity, it is better to make the private limited partnership equity fund be the majority in the market while other types of private equity funds play their roles in the market.U.S.A. is a typical country which has government's regulatory system, and U.K. is a typical one which has autonomy financial supervision system. Different countries have their different cultural background on supervising private equity fund. These models have their characteristics, advantages and disadvantages. In the globalization of investment funds, it can be established a legal system by learning from other developed countries (regions).The goal of financial supervision on the private equity fund in China's Mainland includes two aspects: One is to make a clear definition of the right and obligation of each member (fund manager, investor, custodian, etc.) in it; The other is to restrict its externalities. The principles of financial supervision are as follows: persisting the national sovereignty; public, fair and just; validity and moderation in supervision; coordination between efficiency and fair; developing step by step; discriminative supervision; optimization; etc. By following the goal and principles above, it is possible to establish a legal system on the bases of the condition in China's Mainland, so as to build harmonious economic circumstances. The details include: to stipulate unitive regulator and to establish perfect legal supervision system; to set up reasonable market access; to make multi-levels legal revision; to establish oversell system; to perfect information disclosure system; to limit trade behavior; to strengthen credit control and to use the financial leverage intelligently, etc.