The Legal Dilemma And Countermeasures Of China's Private Equity Fund Exit

Private investment funds refer to the investment funds that are un-publicly collected from the investors;private equity investment funds(hereafter “private equity funds”)refer to private investment funds with the target of equity investment.There exists four steps in the operation of a private equity fund,including fund-raising,investing target enterprises in Non-open market,fund-managing,and fund-exiting.The most important step in the entire operation of a private equity fund is fund-exiting.Generally,there are three different types of the fund-exiting in the operation,including domestic and overseas capital market public offering(or listing),equity transferring(including corporate restructure and share repurchase),and clearing.Macroscopic cause as well as microcosmic cause the dilemma of private equity fund exit in China.Macroscopic cause refers to the faultiness of the overall construction of China's multi-layer capital market system,which leads to two results.First,private equity fund is unable to access to the right capital market to sale its shares and further exit;second,exit of private equity fund invested in small and medium-sized enterprises is high-risk but low-income.Microcosmic cause refers to the unreasonableness of the system design in China's multi-layer capital market,which brings various legal impediments in private equity fund exit,such as risk increasing caused by long shares locked period during IPO exit,private equity fund exit opportunity reducing caused by the institutional contradictions of New Three Board,impossibility of private equity fund exit in Three Board and Four Board market caused by market absence,etc.Through the deep reading and rich working experience as well as the research about the US successful experience in private equity funds exiting and capital market building(major in NASDAQ Stock Market),the author rose a new idea in solving the current legal impediments of private equity exiting in China.Since the exiting through capital market has become the major exiting method for private equity exiting,building a reasonably structured,orderly running and health developing capital market is the key to address the dilemmas in private equity exiting.In addition,the three core points in building such a capital market are market order developing,reasonable regulation establishing,market participant managing,specifically,1)rationally set different levels of capital market access threshold;2)the establishment of different levels of capital market transfer mechanism between;3)to accelerate the construction of regional equity trading market.The author further provided his own suggestions in equity transferring(including corporate restructure and share repurchase)exiting method and clearing exiting methods,as it should be clear from the private equity fund as a share repurchase and liquidation of one of the statutory situation,to relax the relevant legal restrictions and other aspects to establish its legitimacy.