How to subscribe to private equity funds?

Hello, everyone. In this lesson, we will talk about the subscription operations of private equity funds.

1. General subscription process of private equity funds

(1)Perform specific object determination procedures.Investors should cooperate with the recruitment institutions to assess their risk identification ability and risk-bearing ability by means of a questionnaire survey, and undertake in writing to meet the standards of qualified investors and perform specific object determination procedures.

(2)Investor appropriateness matching.Sign the explanatory document of the recruitment institution on the matching between the risk level of the product and the risk bearing capacity of the investor, and perform the investor appropriateness matching procedure. The fundraising institution shall, according to the risk types and rating results of the private equity fund, recommend to the investors the private equity fund that matches its risk identification ability and risk-bearing ability.

(3)Understand fund products and related risks.Investors should carefully read the fund product materials provided by fund-raising institutions to understand the brand, development history, development strategy, investment strategy, management team, senior management information and risk tips of the relevant products.

(4)Complete professional investor (PI) certification.Investors need to provide the necessary asset documents or income proof, which shall be examined by the institution to see if it meets the standards of professional investors and perform the procedures for confirming professional investors. Under the Hong Kong Securities and Futures Ordinance, an individual professional investor refers to a person who has an investment portfolio of not less than HK $8 million or foreign currency equivalent in the last 12 months.

(5)The contract is signed.Carefully read the fund subscription contract, agree that there is no objection and then sign the contract and pay the subscription funds in accordance with the agreement.

(6)Accept a return visit to confirm.After signing the private equity fund contract and paying the subscription fund, the fund-raising institution will make an investment return visit by recording phone calls, e-mails, letters and other appropriate means.

2. Matters needing attention in the core terms

The plan for the establishment of a private equity fund contains many elements, among which the more important core provisions and matters that require the special attention of investors are as follows:

(1)Scope of investment.Investors should pay attention to the prohibited investment scope of private equity funds. In general, private equity funds are not allowed to invest in the following areas: Securities trading (excluding securities transactions at the exit of a project); absorption or disguised absorption of deposits, loans and loans; futures and financial derivatives trading; mortgage and guarantee business; non-self-use real estate industry; sponsorship and donation; loans for investment; misappropriation of non-self-owned funds for investment It is not allowed to borrow money except for short-term loans while waiting for the investor to pay the capital contribution; other businesses prohibited by the regulatory authorities and relevant laws and regulations.

(2)The expiration date.Investors need to pay attention to the duration, duration management and extension of the fund. The average duration of private equity funds is 5-10 years, which can be extended twice, one year at a time. The first 2-4 years of the establishment of the fund is the investment period, followed by the management and withdrawal period. During the management and withdrawal period, the fund manager shall realize all the investments of the portfolio company; except for the follow-up investment and follow-up investment of the existing portfolio company, the fund manager shall not invest in the new portfolio company.

(3)The rights of fund managers.Fund managers have exclusive power over the management, control, operation and decision-making of private equity fund investment business and other activities. Therefore, the investigation of fund managers is the top priority of investing in private equity funds.

(4)Contribute money.The limited partnership private equity fund adopts the commitment investment system, which does not require investors to allocate one-time investment funds, and the time of contribution shall be agreed upon by the private equity fund agreement. Investors need to pay attention to the payment time node and amount, prepare in advance, if identified as a breach of contract investors, need to bear the relevant liability for breach of contract.

(5)Management fees and income distribution.Investors should focus on management fees and income distribution. It should be noted that the manager does not have the right to receive a share of the performance income before each investor has recovered the actual contribution. If a loss occurs in the private equity fund, it shall be shared by all partners on a pro rata basis according to the amount of capital subscribed.

(6)Management of funds.All cash assets of private equity funds, including but not limited to cash to be invested, allocated and expenses set aside, shall be managed in the form of temporary investment and are generally required not to be used to invest in high-risk financial management methods such as wealth management products.

(7)Key people.In private equity fund agreements, it is generally necessary to target a number of core members of the management team as key people and stipulate key person terms. Investors should pay attention to the relevant alternatives in the event of turnover, death and loss of civil capacity of key persons.

(8)Conflicts of interest and related transactions.Some fund managers will manage multi-period funds, so there may be overlap in management time, investment projects and other matters, and there are conflicts of interest and related party transactions. Investors should pay attention to whether the fund managers submit the relevant conflicts of interest to the advisory committee for approval in a timely manner and whether the managers can fairly resolve these conflicts of interest.

(9)Disclosure of information to investors.Private equity funds disclose fund information to investors through regular disclosure of relevant statements and materials and holding annual meetings. In addition, at other times, investors also have the right to request access to relevant materials, photocopying, etc., need to pay attention to the exercise of this right to notify the fund manager in advance, need to pay attention to confidentiality and the corresponding restrictions on the number of rights.

(10)Transfer or withdrawal of investors' rights and interests.In general, the investor cannot transfer any interest in the private equity fund until the subscribed capital has been fully paid, unless the investor applies and obtains the consent of the fund manager.

(11)Dissolution and liquidation.Investors should pay attention to the conditions for the dissolution and liquidation of private equity funds as well as their own relevant rights and interests. It is necessary to have a corresponding understanding of the dissolution and liquidation except for the expiration of the period.

Finally, if the investor invests more than a certain amount, he can fight for more say, such as having a seat on the advisory committee, more favorable investment terms, investment opportunities, investment opportunities for top funds, and so on. The relevant rights and interests can be negotiated with the fund manager.

3. Post-investment management of private equity funds

After completing the subscription of private equity funds, investors should also pay close attention to the follow-up development of private equity funds. Post-investment management mainly includes:

(1)Manage team stability.Pay attention to the increase and decrease of the personnel of the management team, the reasons for the reduction and the background of the new staff. In particular, we should pay close attention to the changes of key people.

(2)The continuity of investment strategy and investment style.Mature funds generally do not easily change their investment strategy and style. Once these two changes occur, investors should pay close attention to the reasons and re-evaluate the risks and returns of the fund, and exercise their rights in a timely manner.

(3)The stability of partners and partnership agreements.In general, the abilities of partners complement each other, such as social prestige, professional level, management ability and social relations. The operation of the organization between partners also needs running-in and dynamic adjustment. If there is a change in the partnership or partnership agreement, it is easy to bring uncertainty.

At this point, the introduction of private equity funds has come to an end. I hope the content will be helpful to everyone. Thank you.