Study On Legal Issues Of The Supervision Of The Private Equity Funds In China

Private equity funds (PE) has become the third important direct financing channel apart from the bank loan and the initial public offering (IPO) after over 30 years of development in China. Several factors, such as UMKM’s financing needs, the acceleration of foreign investment cooperation, the policy guidance of the multi-level capital market, and the officially established principle of appropriate supervision, have altogether created a favorable environment for PE’s development, promoted the establishment of lots of state-backed industrial funds, social capitals and Chinese-Foreign cooperative funds as well as enormously increased the fund raising motivation. The reform of state-owned enterprises, the hot M&A market, and the liveliness of the capital operation of the listed companies and the booming emerging investment field such as the biological medical and the mobile Internet have all brought about new opportunities for the development of PE at different levels.The development of PE is beneficial to solving the UMKM’s financing difficulty, facilitating the upgrading of enterprises and the adjustment of industrial structure, and promoting the construction of a multi-level capital market in China. However, PE is also confronted with some problems in the process of development. So we must improve the system of relevant laws and regulations so as to establish a comprehensive supervision regime which is risk-oriented with self-regulation as priority and government supervision as complements, and to better promote the development of PE which would further China’s Economy.The first part of the paper is about the concept of PE, the differences between PE and the related concepts, the operation process and legal nature of PE for latter parts.The second part is about the supervision of PE. It analyses the economics basis, the law basis as well as clarifies the basic principles of the supervision. PE, as a special form of securities, shall establish its unique supervision ideas and principles, namely the moderate and the classified supervisions. The analysis based on the economics theory is conducted from the point of asymmetric information and externality of the market and the limited rationality of actors. The law theory basis is mainly about the limitations of autonomy of private law, moral hazard and the incompleteness of the law.The third part principally analyses the development status, the legislative status and the problem of the supervision of PE. PE is developing rapidly in China while the related legal system and the supervision rules are incomplete without corresponding regulations to ascertain PE’s legislative status and nature. Meanwhile, the supervision rules are incomplete with no access standards for managers of PE and slack supervision of overseas PE. And the supervision system is also defective without independence and uniformity in the industry self-discipline, so the government is urgently in need of establishing the risk-oriented supervision system to cope with the advent of the era of Pan Asset management.The fourth part, on the basis of supervision theories, puts forward some proposals to improve the supervision situation and existing problems of PE. The operation of PE has its particularity, so we should continually improve the supervision legal system, the supervision rules and regime on the basis of maintaining the balance between the financing convenience and the investment safety.