The Research On Protection Of Investors’ Rights And Interests Of The Private Equity Investments

Private equity investment in China has developed for more than 20 years. In the just past year of 2015, faced with economic restructuring, industrial restructuring and turmoil in secondary market, Chinese private equity funds had made a record on raised money in either number of times or total amount. Orderly development of the private equity market will not only help promote circulation movement of capital itself and build a complete capital market system, conducive to SMEs financing, investment of industrialization, and reforms on science and technology filed, but also help to improve portfolio companies’ internal governance. However, due to the presence of moral hazard introduced by principal-agent relationship and information asymmetry, as well as adverse selection, and China’s relevant laws and regulations are not perfect and so on, it’s an urgent and important issue that we need to solve to consider on how to avoid investment risks, weaken the problems of the institution itself to protect private equity investors interests, thereby promoting the development of private equity funds.This paper is divided into four parts. The first part provides an overview of the concepts of private equity investor protection and analyze the necessity of investor protection. The following three chapters analyze system and methods from the perspective of investor protection, considering before investigation, during operation and exit stage of private equity fund investigation respectively.The first chapter introduces the definition and classification of private equity funds as well as private equity investors, make clear the differences between private equity funds and raised funds, private equity funds and private equity investment funds, and which institutions and individuals belonging to private equity investors. Secondly, dig into the risks and causes of risks faced by investors during the stage of access permission, operational phase and exit stage, settle the groundwork for later discussion on how to protect interests of investors by institution system design and specific methods, furthermore, an analysis of the necessity and importance of conservation for investors is given.The second chapter introduced the reason why we setup investor access system. It is expected that by restricting investor access, a part of administrative measures or regulatory measures which should be taken by government or regulatory authorities can be simplified. In this case certain conditions for market access should be set to investors by law. This chapter focuses on the analysis and comparison of the United States of QFII system and investor access systems in our country. Details of the evolution of the US private placement exemption from registration system, as well as changes in the US QFII system standards attendant. Finally, give an introduction on the existing system of access conditions and on qualified investors, also make legal assessments and recommendations to investor access system in China.With the premise of ignoring external law and regulations, the third chapter analyze on how to protect the interests of investors during the process of private equity investment by partnership agreement, articles of association, etc., in order to avoid information asymmetry and problems introduced in principal-agency relationship. First introduced the investor contribution agreement, analyzes phased investment and co-investment approach, on one hand to avoid the risks posed by all investment, on the other hand also restrict or encourage corporate managers by actual investment agreement, in order to protection interests of investors. Secondly, according to detailed analysis on priority provisions, right to adjust the terms of detailed valuation, anti-dilution provisions and towing rights, analyze from a practical point of view on how investors safeguard and protect their interests, and prevent risks from investment companies.The fourth chapter concentrates on exit stage, which is regarded by investors as the most critical stage. Analysis is given on how to improve the smooth exit of private equity funds, in order to ensure return and recycling of funds. After a brief overview of the IPO, M & A exit, stock buyback and liquidation Exit which are known as four traditional exit path, make use of specific research data to dig into the exit status of private equity in China last year, and finally from the perspective of investor protection, evaluate China’s relevant laws and existing institutions, especially for the tiered mechanism of new three board, by perfecting information disclosure system, protect investors’ right to know, thereby reduce the cost of information gathering activity, strengthen the capital market liquidity. In addition, there should be more effort made to continue to broaden the exit channels for investors, and ultimately protect the interests of private equity investors.In summary, the first chapter presents three types of risk faced by investor protection, analyzes the causes of the risks. The subsequent three chapters discuss these three issues, focusing on the different stages of private equity investment activities, and analyzed from multiple perspectives such as legal, institutional, contracts, etc., propose methods and give recommendations in order to reduce investor risk, and protect the interests of investors.