Research On Balancing Mechanism Of Interest Of Limited Partnership Private Equity Funds

Since the U.S. Newbridge Capital finished the acquisition of ShenzhenDevelopment Bank relative controlling interest of17.89%with RMB1.235billon in2004, the concept of private equity funds into the people’s attention. In a few shortyears, China’s private equity fund from horizon to flourish, the emergence of manysuccessful investment cases has become quite an important part of the vitality inChina’s financial markets. Limited partnership by virtue of flexible, autonomousinternal governance structure and adequate incentive and restraint mechanisms,investment funds and a wealth of professional management experience and broadrelationships can effectively integrate, and achieve consistent development; limitedpartnership become the mainstream form of private equity funds.In the limited partnership private equity funds, there are two stakeholders: fundinvestors and fund managers. With the behavior of raising funds, fund investors andfund managers establish the principal-agent relationship, and the partnership; thisstaggered dual legal relationship makes the interests of fund investors and fundmanagers both the existence of consistency and in conflict inevitably. In order toprotect the interests of all the main transaction efficiency and equity, there isnecessary to build a balancing mechanism of interest to regulate the private equityinvestment and to promote the continued development of the private equity market.Under existing laws, there is no concept of “private” and no dedicated system to regulate private equity funds: the Partnership Enterprise Law establishes theframework of organization, but just25articles simply provide all the main rights andobligations; The Interim Measures for the Administration of Venture CapitalEnterprises is all focused on the organizational form and the establishment ofconditions and external regulatory norms; rights and obligations of the fund investorsand fund managers can only refer to Securities Investment Fund Provisions.Imbalance between the interests of fund investors and fund managers may be in lackof effective solutions.Therefore, starting from the respective interests of fund investors and fundmanagers, this paper will point out the conflict between their interests and analyzethe reasons. On a selective basis of the value orientation of the private equity fund, Iwill draw on the successful experience of the legislative policy support of the UnitedStates and the governance structure of limited partnership private equity funds, andto build a suited balancing mechanism of interests.In accordance with the above writing ideas, this paper is divided into foursections:The first section mainly produces an overview about the balancing mechanism ofinterest of limited partnership private equity funds: first introduce the concept andcharacteristics of private equity funds, development, and the shareholders of limitedpartnership fund; followed by analysis of the theoretical basis of the balancingmechanism of interests, principal-agent relationship and partnership; finally, anoverview of the balancing mechanism the interests of the limited partnership.The second section focuses on the balancing mechanism of interests of limitedpartnership private equity funds: legal subjects, conflicts of interest between theshareholders; and in-depth analysis of root causes and direct causes of the conflicts;on basis of selecting the target of value, I will establish a detailed balancingmechanism of interests.The third section is the reference: first analysis of the design of the system of theUnited States legislation and the limited partnership agreement in respect of thebalance of interests of U.S. and introduce the current balancing mechanism of interests in China.The fourth section is to perfect the balancing mechanism of interests of limitedpartnership private equity funds: with the coordination of the internal relief of thelimited partnership funds and external support by legislation and policy co-ordination,achieve the balance the interests of fund investors and managers.