First, the characteristics of limited partnership private investment funds
Private investment funds in the form of limited partnership can effectively avoid double taxation, and through reasonable incentive and restraint measures, in the case of separation of ownership and management rights, ensure the interests of operators and owners are consistent, promote the division of labor and cooperation between general partners and limited partners, and give full play to their respective strengths and advantages; In addition, the limited partnership private investment fund has the characteristics of low threshold, simple establishment procedure, simple and flexible internal governance structure, efficient decision-making procedure and flexible benefit distribution mechanism.
From the legal point of view of limited partnership, limited partnership private equity investment funds also have the following characteristics:
1. The property of a limited partnership private equity investment fund is independent of the property of each partner. As an independent unincorporated enterprise entity, the limited partnership private equity investment fund has independent property; For the debts of the partnership, firstly, the partnership's own property is used to pay off the debts, and the insufficient part is borne according to the different status of each partner; During the existence of a limited partnership, each partner may not require the division of the partnership property. Thereby ensuring the property independence and stability of the limited partnership private equity investment fund.
2. General partners and limited partners enjoy different rights and bear different responsibilities. In a limited partnership, the general partner carries out the partnership affairs, and the limited partner does not participate in the operation of the partnership; Limited partners shall be liable for the debts of the partnership to the extent of their subscribed capital contributions, and general partners shall be jointly and severally liable for the debts of the partnership. This institutional arrangement can urge the general partner to carry out the partnership affairs carefully; For limited partners, it has the advantage of controllable risks.
Second, the comparison of different forms of private investment funds
(See the table below for details)
According to the research group of Tianjin Branch of the People's Bank of China, based on opportunistic behaviors such as adverse selection and moral hazard under asymmetric information, the unanimous conclusion is that the contractual (trust) and limited partnership private equity fund governance institutions are superior to the corporate system.
Third, the core mechanism of limited partnership private investment fund.
The core mechanism of limited partnership private equity investment fund is to establish an effective incentive and restraint mechanism for professional investment talents, improve the operation level and efficiency of the fund and maximize the interests of investors. The main content is reflected in the following aspects:
1, restrictions on investment scope and investment methods
Private investment is a high-risk investment mode, so it is particularly important to limit the investment scope, investment mode and investment proportion of each project. However, due to the complexity and inexhaustible scope of investment and investment methods, "negative constraints" are often used in practice to control investment risks. For example, it is agreed that the investment in a project shall not exceed 20% of the total subscribed capital contribution, and the investment shall not bear unlimited joint liability, and the bank loan of the partnership enterprise shall not exceed 40% of the total subscribed capital contribution.
2. Control of management expenses and operating costs
In practice, there are usually two ways: first, management fees include operating costs. The advantage is that it can effectively control operating expenses and control costs. At present, in order to attract funds, many domestic private investment funds have adopted this simple way. Second, the management fee is shared separately, and the operating expenses of the limited partnership are collected by the limited partnership as a cost, which is not included in the management expenses of the general partner. This is an internationally accepted way. The amount of management fee is usually 0.5%-2.5% according to a certain proportion of the managed funds, and the extraction method can be quarterly, semi-annual or annual.
3. Benefit distribution and incentive mechanism
The general partner and limited partner of a limited partnership enterprise can flexibly agree on the distribution method of investment income; Generally speaking, for the part within the expected investment income, both parties can agree that the general partner can enjoy the income at a lower proportion; The general partner can enjoy a higher proportion of the income beyond the expected income; The higher the investment income, the higher the proportion that the general partner enjoys as a reward for the limited partner, which can promote the general partner to actively, effectively and beneficially carry out the partnership affairs. In domestic practice, in order to attract investors, some private investment funds often adopt "priority recovery mechanism" and "callback mechanism" to ensure that the general partner can enjoy the profit distribution after the limited partner recovers the investment, so as to ensure that the interests of the general partner and the limited partner are consistent.
(1) About "Priority Recovery Mechanism"
The so-called "priority investment recovery mechanism" means that when the fund expires or an investment project is liquidated, the limited partner must first ensure that the investment has been fully recovered or reached the minimum rate of return before the partnership enterprise is distributed. For example, you can agree to the following income distribution methods:
First, the limited partner gets back all the investments invested in the fund;
Secondly, calculate the internal rate of return. If the IRR is less than 8%, all investment income will be distributed to all partners according to the proportion of capital contribution, and the general partners will enjoy the income according to the proportion of capital contribution.
Thirdly, if the IRR is higher than 8% but lower than 10%, the part below 8% will be distributed to all partners according to the proportion of capital contribution, the part above 8% will be distributed to the general partners first, and the remaining 80% will be distributed to all partners according to the proportion of capital contribution;
Finally, if the IRR is higher than 10%, the income within 10% will be distributed according to the above principle, and 25% of the income above 10% will be distributed to the general partner first, and the remaining 75% will be distributed to all partners according to the proportion of capital contribution.
(2) About "callback mechanism"
The so-called "callback mechanism" refers to the mechanism that the general partner takes out a certain proportion of funds from the management fees received and the profits distributed after the withdrawal of investment projects, and deposits them in a specific account to make up for the losses or make up for the gains when the funds or some investment projects lose money or fail to reach the minimum income. For example, in a limited partnership private equity investment fund, it is agreed that the general partner will keep 40% of the income, which will be used to make up for the loss or income when the fund loses or fails to reach the minimum income of 8%.
To sum up, we can see that both the "priority investment recovery mechanism" and the "callback mechanism" reflect the difficulties of domestic general partners in raising funds and the compromises and concessions made in the distribution of benefits in order to attract funds.
4. Ways for limited partners to join or withdraw from the partnership and restrictions on the amount of capital contribution transferred.
After the establishment of the limited partnership private equity investment fund, new limited partners can still be allowed to join; Generally speaking, the access of limited partners is decided by the general partners, but some restrictions will be set, for example, limiting the new limited partners to qualified institutional investors and corresponding capital requirements. In addition, it is also necessary to clarify the calculation method of the rights and interests of newly hired limited partners or the compensation scheme for the original partners. Regarding the withdrawal of limited partners, in practice, the partnership agreement requires limited partners to ensure that they cannot withdraw during the existence of the partnership.
In order to ensure the stability of limited partnership private equity investment funds, limited partners are usually restricted from transferring the capital contribution of the partnership. The transfer of the limited partner's contribution to the partnership can be divided into two forms: self-transfer and entrusted transfer. "Self-transfer" refers to the way that the limited partner finds the transferee by himself, and the general partner reviews and assists the transfer. "Entrusted transfer" refers to the way in which the limited partner entrusts the general partner to find the transferee and the general partner assists in the transfer. Under normal circumstances, when the limited partner transfers his capital contribution, the general partner requires to pay a certain fee, and the rate is different according to the different forms of transfer; The commission rate of self-transfer is low, for example, it can be 65438+ 0% of the transferred capital contribution, and the commission rate of entrusted transfer is high, for example, it can be 5% of the transferred capital contribution; By charging a certain transfer fee, limited partners can be controlled to frequently transfer their capital to the partnership. The fees collected can be regarded as the income of the partnership. If the general partner provides intermediary services, he may also extract a certain percentage of intermediary remuneration.
5. Constraints on General Partners
In the limited partnership private investment fund, the general partner carries out the partnership affairs, and the limited partner does not participate in the operation of the limited partnership, so it is necessary to prevent the general partner from infringing on the interests of the partnership. In addition to the binding mechanism already described in this document, there are the following binding measures for general partners:
(1) Related Party Transaction Restrictions
The limited partnership agreement prohibits the general partner from engaging in related party transactions, and prohibits the general partner from engaging in business competing with the partnership alone or in cooperation with others, unless it is approved by the general meeting of all partners. However, a limited partner may conduct transactions with the partnership.
(B) restrictions on raising new funds
To ensure that the general partner has enough attention to carry out the business of the partnership, private investment funds will generally limit the speed at which the general partner can refinance.
(3) ? Follow the investment restrictions of the fund.
In order to prevent general partners from investing or withdrawing from projects objectively based on their own interests, private equity funds restrict general partners from investing or withdrawing from funds.
(4) The system of regularly reporting the operation and financial status of the fund.
For the matters mentioned, the private equity investment fund requires the general partner who carries out the partnership affairs to report to the limited partner regularly, and the limited partner has the right to consult and copy the accounting books and other financial materials of the limited partnership enterprise, and has the right to obtain the valuation report of the investment project.
6. Sub-partners shall bear the loss mechanism first.
In order to satisfy the preference of risk-averse investors, some private equity funds require general partners or related limited partners to be sub-partners, and bear the losses first with the amount of capital subscribed to the partnership. For example, its risk-taking methods are as follows: first, the secondary partners bear the losses with the capital subscribed by the partnership; Secondly, if the contribution of the junior partner is not enough to bear the loss, the other partners shall share it according to their share of contribution.
7. Entrust management mechanism
The partnership affairs of a limited partnership private investment fund are generally carried out by the general partner, but the general partner may also entrust the partnership affairs to a third party. At present, due to the fact that China has not released foreign capital to participate in the establishment of partnership enterprises and the restrictions of foreign exchange control on capital projects, there are certain obstacles for foreign capital to directly set up private equity investment funds as general partners. Therefore, it is a flexible solution for foreign capital to participate in the establishment of fund management companies and obtain the profits of general partners through monopoly trade arrangements.
Where a general partner entrusts partnership affairs to a third party, it shall comply with the relevant provisions of the contract law on entrustment contracts. However, in the context of contract law, the entrusted management mechanism has the following shortcomings:
First, the entrustment relationship can be dissolved at any time, and the legal relationship is unstable. However, if the entrustment contract is unilaterally terminated and losses are caused to the other party, it shall compensate for the losses.
Second, fund management companies can only bear the legal responsibility for investment failure if they are at fault, which is lighter and less restrictive than general partners who bear unlimited liability.
Fourthly, the internal governance of limited partnership private investment funds.
A typical limited partnership private equity fund is characterized by the separation of owners and operators. On this premise, how to solve the two major problems of information asymmetry and risk asymmetry in fund operation and prevent operators from deviating from the interests of owners; At the same time, the internal governance of the limited partnership private equity investment fund aims to ensure the full play of the management ability of professional investment talents and find the best balance between different interests, so as to improve the efficiency of fund decision-making operation and decision-making and ensure the maximization of fund investors' interests.
1. Typical internal governance structure of foreign private equity funds.
Among them, the partners' meeting generally only makes decisions related to the admission of new partners, the withdrawal of partners, the modification of limited partnership agreement and the liquidation of partnership enterprises. And listen to the general partner's report on the implementation of partnership affairs and supervise the general partner to implement partnership affairs according to the requirements of the partnership agreement, but the partner meeting does not control the investment decision of the partnership enterprise and the operation of the invested project. Different partners have the same voting rights in the partnership, and the matters decided by the partners' meeting shall be voted according to the number of people, regardless of the proportion of capital contribution.
Some foreign private equity investment funds also set up advisory committees, which are generally composed of limited partners who have subscribed for a certain proportion of capital contributions, to make decisions on investment matters with conflicts of interest, such as related transactions between the partnership and the general partner, investment projects with foreign capital exceeding a limited proportion, but they cannot replace and surpass the functions and powers of the general partner.
The general partner is the actual operator of the fund and the decision-maker and executor of the fund investment. Within the scope authorized by the partnership agreement, the investment decision of the fund is completely completed by the general partner without interference and influence from other limited partners. To sum up, the original intention of limited partnership private equity investment fund is "capable people contribute, rich people pay the bill".
2. Compromise of internal governance structure of domestic private equity investment funds.
Because the concept of domestic debt investment has not been widely recognized by the society, mature investors need to be gradually cultivated, and there is also a lack of general partners with high credibility and appeal; Therefore, the general partners of domestic private equity funds often transfer part of the decision-making power and management power to the limited partners, which reflects the compromise of domestic private equity funds under the domestic objective reality.
The biggest feature of this internal governance structure is the establishment of an investment decision-making Committee composed of general partners, limited partners and third-party professionals, which has the final decision on the investment matters of the fund. For example, the Jiafucheng Fund in China stipulates in the partnership agreement that the investment and decision-making committee consists of seven members, two of whom are appointed by general partners, three representatives of limited partners and two external experts, who need to have financial and legal backgrounds. In addition, Sequoia Fund, a well-known domestic private equity investment fund, also adopts this form of governance.
3. Private investment funds with limited partnership and company as the core.
Although this private investment fund is established in the form of limited partnership, the investment operation of the fund is decided by all partners. Generally speaking, the fund's partners' meeting or investment committee votes according to the proportion of capital contribution, which is similar to the decision-making form of the company's shareholders' meeting. Wenzhou Donghai Venture Capital, the first limited partnership private equity investment fund in the Yangtze River Delta, adopted this form. However, due to the inconsistent investment intentions of investors, it is difficult to reach an agreement on investment matters, which eventually led to the early death of Donghai Venture Capital.
Abstract: Reasonable design of internal governance and operation mechanism of private investment funds can effectively improve the acceptance of investors, and then promote the successful collection and establishment of private investment funds.