Research On The Fund’s Managers’ Duty In The Limited Partnership Private Equity

As an innovative investment and financing instrument, private equity has broughtenormous benefits to the investors in the past few years. According to statistics, theinvestors got$120billion U.S. dollars in2013which has gone beyond the record in2012. When in the first half of2013, private equity companies have given$60.8billion return to investors. The limited partnership private equity fund, taking thenatural advantages of structure and the flexible operation form, is well known as “themost efficient form of organization. And since2006, after the new “PartnershipEnterprise Law” being revised, it has become the private equity’s main form oforganization, which greatly promotes the fund market’s development. However, thisform, similar to the experts managing fortune, inevitably exists the agency risk issuesof the separation of ownership and control right, causing adverse selection and moralhazard problems. In the case of asymmetric information, investors cannot form aneffective supervision of the managers, whose interests are vulnerable to be damaged.In addition to the illegal fund-raising and other financing chaos, people pay more andmore attention to the limited partnership private equity’s safety and legality. Howfundamentally putting an end to the chaos may need us put more attention to thecontent of our fund manager’s own professional ethics and his legal responsibilitiesand obligations regulatory aspects. With the promulgation of “the regulation of private equity managers’ enrolment and fund registration record (trial implementation)”,”theSecurities Investment Fund Law” and other laws, these can laid a good foundation forthe legal regulation of fund managers. Therefore, it has become the only way toprotect the interests of the investors and to achieve the private equity fund’s good andhealthy development to clear and regulate the managers’ obligation from themulti-pronged approach in order to effectively regulate their daily managingbehaviors.This article will discuss the limited partnership private equity managers’obligations from three parts and comprehensive analysis the specific content and thecorresponding practical operation of the obligation.The first part, from the basic content and organization of the private equity funds,this paper introduces the definition of a limited partnership and the natural advantagescompared with the other two types of private equity funds to clear the theoreticalvalue of this writing. Followed by further analysis the limited partnership privateequity’s inherent characteristics of separation of ownership and control, the hugedisparity of the two kind partner status and the defect of two co-responsibilitymechanism, in addition to the principle-agent problems, these laid a basis to find thenecessity and practical significance on the research of the managers’ obligation.The second part, under the theoretical basis support of fiduciary duty, this articledoes a deep research of the care and duty of loyalty exiting in the limited partnershipprivate equity’ practical operation and clarifies his duty’s standards and degree ofnon-competition ban, personally managed, compliance to the rules, disclosure andfaire trade, and prudent investment shouldered by the managers in the process of thefund’s establish, daily operation and investment management. By reference to existinglaw and learning from foreign experience, herein this article forms the focus.The third part, on the basis of clarifying the fund managers’ obligation, themechanism of constraints and incentives of the managers to fulfill the obligation islogically to be the last logical researches focus of this paper. In order to better practicethe funds managers’ obligation to the practical operation, on one hand it shouldclarifies the qualification of the fund’s manager, perfect the investment restrictions on specific issues and establish perfect special advisory committee to form a soundmanagers’ restraint mechanism including a series of forcing and conventions rules. Onthe other hand it need form the profit incentives mechanism by two-eight principlesand funds managers’ agreed profit proportion. Finally this article hopes to docontribution to the good and healthy development of the limited partnership privateequity through these above recommendations...