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Research On The Fiduciary Duty Of PE Fund Manager

Posted on:2018-08-31Degree:MasterType:Thesis
Country:ChinaCandidate:X C WangFull Text:PDF
GTID:2416330536475458Subject:Law
Abstract/Summary:PDF Full Text Request
Private equity funds are innovative financial instruments in our country,whose investors are some special institutions,fund practitioners,wealthy individuals and so on.In recent years,Private equities from the brutal development of the state gradually into the rational development period.Private equity funds have three typical characteristics of high risk and high reward,private placement and long-term investment.First,most of the investments in private equity funds are equity capital investments.Through the investment of unlisted companies,investors obtain common stock,preferred shares or convertible bonds and other financial instruments.Private equities a high yield and high risk coexistence of the cause,requiring managers’ wisdom courage.Second,investors are mature capital market investors of risk-prone type.Most countries have set the threshold for investors,only specific institutions,fund employees and wealthy individuals can participate in private equity.Third,the private equity fund is an innovative medium and long-term investment vehicles,less-liquid private equity funds typically require 10-year commitments from their investors.Fiduciary duties originated in the field of trust law,and later was widely used in corporate law,principal-agent law and other fields.Traditionally,fiduciary duties include the duty of loyalty and the duty of care.Fund managers who provide expert financial services are the core of the fund operation.Based on legal,economic and social reasons,fund managers should commit fiduciary duties because of the legal relationship with investors.Duty of loyalties are the moral requirements of the managers of private equity funds,can be described as the core of the fiduciary duties,to prevent conflicts of interest between fund managers and their investors.Duty of care is the requirement of the ability to work and the commitment spirit to work.At present,although we can find legal basis that fund managers assume their obligations in the "Company Law","Contract Law" and "Partnership Law" and other general sources of law and "Private Equity Fund Supervision and Management of the Interim Measures" and other special sources,there are still many managers in violation of the obligations of private equity,such as illegal fund-raising,misappropriation of fund property,special rat trading with investment projects to earn gray income.As of January 1,2017,I have browsed the website,Asset Management Association of China,and has discovered that there are at least 13 cases that fund managers were disciplined by the association in recent 2 years.Analysis of its causes,there are still formal and substantive defects in the legislation of fiduciary duties of China’s private equity fund managers.In form,the system of the fiduciary duties is not complete and that leads to the lack of clear rules of universality.In addition,there are some shortcomings in clarity and foreseeability in micro-rules,which makes it difficult to apply a law in judicial practice.In essence,China’s legislation failed to suit the remedy to the case,and its existing regulations do not match the characteristics of private equity funds.The conflict of interest in the private equity fund is inherently harmless,and the duty of loyalty requires the manager to place the investor’s interests first,showing the characteristics of "rigidity".At the stage of fund establishment,the duty of loyalty of the manager is mainly manifested as the fair treatment obligation,and it requires the manager’s equitable treatment to investors,and that means the managers have to try not to take sides in their service or discriminate against small-business owners and venture capitalists.In the fund investment and the exit phase,the main focus of the duty of loyalty are on fair trade obligations.The traditional "fair trade obligations" originated in Anglo-American law system,which are aimed at solving the the conflict of interest between fund managers and investors in the process of equity capital investments and the key spirits are no conflict rule and no profit rule.Different from the duty of loyalty in the moral aspects of the rigid needs,the duty of care of managers reflects in the professional ability and the degree of professionalism,showing a certain degree of "flexibility." In the fund raising stage,the manager has the obligation to understand the investor and ensure that the potential investor is a qualified investor.In the fund investment stage,the obligation to prudently invest is the main obligation of the manager,which is the restriction of the expansion of the investment right of the fund manager,requiring the managers to reasonably prevent the investment risk while pursuing the return on investment.In order to protect the investor’s trust in the qualification of the manager,the manager shall bear the obligation of self-management in order to minimize the possibility that the information asymmetry may infringe the interests of the investor in the day-to-day management period.In view of the different emphasis on different aspects of fiduciary duties,this paper is based on the characteristics of private equity funds,combined with practical operation and real cases,to explore the specific obligations of fund managers in the financing,investment,management and exit of all aspects.Last but not least,I have tried to put forward some corresponding recommendations in the responsibility of the managers and judicial trial standards.
Keywords/Search Tags:Private Equity, Funds Managers, Fiduciary Duties, Duty of Loyalty, Duty of Care
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