Study On The Risk Control Of The Private Placement Funds

In the 60’s of 20th century, the total assets value of the Quantum Fund created by Soros was increased from the initial $4 million to nearly $6 billion at the end of 1997. The fund became a giant fund in less than 30 years, and there are few funds can match with it in all investment fund in the world. Although the assets of the Quantum Fund is only 6 billion, but because it can obtain tens or even hundreds of billions of capital by leverage financing and other means, it would play an important role in the international financial market. In the 90’s, the fund has launched several large-scale Currency Wars, which plays a critical impact in the trend movements of a country’s currency. Some one even accused the Quantum Fund was the 1997 Southeast Asian financial crisis maker. Quantum Fund’s remarkable achievements and tremendous influence has attracted more and more people to pay attention to and study this kind of innovative investment in the financial markets. And another hedge fund, as one of the international four famous hedge funds with the Quantum Fund, Tiger Fund and Omega Fund, the, Long-Term Capital Management (abbreviated as LTCM) founded in 1994 also has made remarkable achievements in its operations four-year period. However, in 1998, financial crisis fell into Asian financial markets, making LTCM to the brink of bankruptcy because 60 times leverage magnified the relatively small errors, and further causing a number of credit institutions to credit crisis, which allowed people to feel deeply that high-yield hedge fund is usually associated with high risk.In 2001, a study report written by Xia Bin revealed that in China there already was existed about 70 million private placement funds, and most existed as private form, free edge of the law. Considered with its demonstration effect in the international arena and the development status quo in the domestic, the legalization and standardization of private placement funds has been a hot issue among experts, but still not to reach a consensus, in our country the private placement funds has been in a gray area. In 2007, Ningxia appeared a private placement funds scam, which caused more than 200 people deceived, involved up to￥6 million, In recent years, such criminal cases show a rising trend year by year. Private placement funds have unconsciously infiltrated into our lives, at the same time the risks from the funds have been quietly stood in front of us too. Study on the risk control of the private placement funds is no longer just a forward-looking issue, but an important practical meaningful study.What are the private placement funds? Which characteristics do they have? How do work? What study to do it both at home and abroad? What is the status of the private placement funds in China? Exactly what problems exist? Which risks may be leaded? At this stage, how to control these risks in order to improve the risk control system? With these problems, I begin to write this paper.This paper is totally divided into six chapters:Chapter one briefly descript the research background and study significance, research methods, the study basic thinking and logical structure, as well as the difficulties encountered in writing and areas for further improvement.Chapter two, which is composed of 4 sections, introduces the related concept of private placement funds. Section one describes the connotation of private placement funds. Section two introduces the classification of private placement funds, clear the study object of this paper. Section three illustrates difference between the private placement funds and public offering funds, and also summarizes the characteristics of private placement funds. And then analyzes advantages of the private placement funds compared to the public offering funds, shows great potential for development. The last section describes the operation mechanism of private placement funds in detail. Risk comes from each step of the operation, so this section is ready for the risk control study. This chapter has answered the connotation of private placement funds, its characteristics, operational mechanism and other knowledge, which helps people understand the private placement funds more systematically and comprehensively.Chapter three does an overview about the private placement funds’relevant theory and the risk-control situation at home and abroad. The whole chapter is divided into two sections. Section one summarizes the private placement funds’ relevant theory. First, combines the principles of economics, analyzes the economic theory in the private placement funds, and then depicts the problems may triggered by economic theory, at last reveals the dilemma the private placement funds faced. Section two summarizes the status of the funds in the major developed countries and areas and overviews the study situation in China. This chapter overview the risk control situation at home and abroad, which provides the historical reference for the following study.Chapter four which is divided into five sections studies the development status of China’s private placement funds and analyzes the main risk and its reasons. Section one describes the development status of China’s private placement funds, depicts the study background. Section two combine the development status clearly proposes several major problems of the private placement funds in China. Section three analyzes the major risks the funds face, as well as the main reason caused the risk on the basis of analysis in the previous two sections. Section four depicts the urgency of strengthening the risk control. Section five makes a simple summary. This chapter has done a detailed study on the development of China’s private placement funds which can help do a deeper study. This chapter and the next will be the focus of this paper.Chapter five which is divided into three sections and section three further divided into five sections, studies the funds’risk control and prevention. Section one explicitly puts forward the risk management targets. Section two specifically sets out the risk control principles. Section three studies on risk control measures. Firstly, describe a risk-control holistic framework, and choose the supervisor as the research perspective. And then further divide this section into five subsections, respectively study on the major risks. At last raise the constructive comments and suggestions. This chapter answered how to control the risks of private placement funds from the supervisors’perspective, which provides the theoretical reference to regulators.Chapter six continues the above studies, further researches the risk control of the funds from multi perspectives. The whole chapter is divided into three sections. Section one from the internal control perspective studies. On the one hand it is necessary to establish a reasonable corporate governance structure that allows the company standardized, on the other hand should enhance risk control from the professional manager perspective, improve risk control awareness and risk control technology, which is an important aspect of risk control. Section two from the external monitor perspective studies. Industry associations and market surveillance play an indirect regulatory function. The last section presents market requirements for faster and better developing private placement funds. This chapter has done a multi-angle analysis and clearly shows the direction for further research, In this paper the last chapter plays an indispensable and important role.The innovation of this paper is to select a specific research perspective, that is, from the supervisors’perspective study on the risk control of the private placement funds, and the study has clear thinking.