Private fund manager major matters change practical operating points analysis

Shanghai Dehehantong Law Offices has recently successfully assisted a private equity fund management company in Beijing to complete the actual control change of the private equity fund manager and help the manager meet the compliance requirements.

Although the Asset Management Association of China (hereinafter referred to as “AMAC”) has a clear self-discipline rule for the change of major matters of private fund managers, there are still many problems to be further clarified in the actual operation process. Through this project, the author's team learned about the CCA's window guidance opinions on more practical issues, and will summarize them one by one through this article, in order to communicate with the same industry.

01. Preconditions for major changes of private fund managers

According to Article 48 of the Measures for the Registration and Filing of Private Investment Funds (hereinafter referred to as the Measures for Registration and Filing), changes in major matters involving the controlling shareholder/actual controller/general partner shall be completed within 30 working days from the date of change. Due to matters involving the change of the actual controller, the Association will refer to the new manager to conduct a comprehensive verification of the institutional situation, so the legal opinion involves more content of the company and personnel, which needs to be prepared in advance. I recommend contacting a fund attorney to plan ahead before the manager has a plan.

For the actual change of control of the manager, in addition to meeting the requirements of the new manager, the manager must ensure that the management scale continues to be not less than 30 million yuan in the 12 months before the change date; Since the date of change, there has been no change in the actual controller within three years (if there is a change due to special circumstances, it is necessary to truthfully explain the reason to the CGIBA, and the CGIBA will make a comprehensive judgment).

In addition, the author came into contact with many managers, after the major shareholders who originally held more than 50% of the shares transferred some of the shares, the remaining shareholding ratio was less than 50%, but the actual control rights remained unchanged, that is, only the controlling shareholders changed. In this regard, the CGIBA's opinion is that it is necessary to issue a special legal opinion on the change of controlling shareholders.

02. Basic requirements for change of actual control

(1) Name and business scope

If the name of the manager still contains “investment management”and“asset management”, the name needs to be adjusted to contain the words “private fund”/“private fund management ”/“ venture capital”while changing the actual control.

The business scope of the private fund manager should contain the words “Private investment fund management”/“Private securities Investment fund management”/“ Private equity Investment fund management “/“venture capital fund management”, and shall not contain conflicting or unrelated businesses. In particular, private equity fund managers shall not include “investment consulting”in their business scope.

Generally speaking, if the name and business scope need to be changed at the same time as the equity change, the industrial and commercial department will put the name and business scope change in advance, and then carry out the equity change after the change is completed. However, due to the differences in the processing time of different regions, so in order to meet the provisions of the Association of China on 30 working days, the author recommends that private fund managers understand the processing process before carrying out the actual change of control.

2. Maintain professional operations

According to the provisions of Article 19 of the Registration and Filing Measures, the private fund manager shall follow the principle of professional operation, the main business is clear, and shall not engage in other businesses other than the private fund business.

According to the practical experience of the author's team in the change of actual control of private fund managers, the“professional operation principle” here not only requires that the future exhibition business plan meets the professional operation, but also requires that the actual business carried out in the historical operation process must also meet the professional operation. This requirement involves a relatively heavy verification task, so in order to meet the 30 working days stipulated by the Association, the author recommends that the private fund manager start preparing in advance.

(3) Equity structure

According to the requirements of Article 2 of the “Private Fund Manager Registration Guideline No. 2 - Shareholders, Partners, Actual Controllers” (referred to as the “Registration Guideline No. 2”), the equity structure of the private fund manager shall be concise, clear and stable, and no more than two layers of nested structure shall be established without reasonable reasons.

At the same time, according to the provisions of Article 6 of the Guidelines on Registration of Private Fund Managers No. 1 - Basic Operating Requirements (referred to as the “Registration Guidelines No. 1”), in the absence of exemption, the legal representative/executive partner or appointed representative and senior management responsible for investment of a private fund manager are required to collectively hold a certain share of the equity of the Private fund Manager. The minimum requirement is the total paid-up equity of 2 million yuan.

Under normal circumstances, the actual change of control of private fund managers will inevitably involve the change of equity structure. Therefore, the author suggests that private fund managers consider the requirements of the equity structure in the self-regulatory rules of the Association in advance.

(4) the actual controller

1. Actual controller identification

According to Article 11 of the Registration Guideline No. 2, the Association determines the actual controller in three ways: the first is holding more than 50%; The second is to actually exercise more than half of the voting rights of shareholders through the agreement of concerted action; The third type is those who can determine the election of more than half of the members of the board of directors or can determine the election of executive directors through the exercise of voting rights.

In the actual control change project of a private equity manager in Beijing, the author's team intends to identify the second largest shareholder as the actual controller through the second way. However, in practical operation, it is difficult for CGIAC to identify this, and it only accepts the identification of the largest shareholder as the actual controller. At the same time, it should be noted that even if the agreement on joint actors is signed, it needs to be signed jointly with the largest shareholder.

2. Actual controller experience requirements

According to the provisions of Article 9 of the Registration and Filing Measures, the actual controller shall have more than 5 years of experience in asset management, investment, and related industries. In addition, the Association further detailed provisions on the identifiable work experience in Articles 9 and 10 of the Registration Guideline No. 2. In short, the work experience of the actual controller recognized by the Association needs to meet the requirements of “senior executive positions in formal financial institutions or actual investment management”.

In general, CGIAP has higher requirements for the actual controller's experience. The author suggests that managers of private equity funds who intend to make a change of actual control check the work experience of candidates for actual controller before the change to improve the likelihood of success of the change.

(5) Senior managers

1. Executive experience requirements

According to the provisions of Article 10 of the Registration and Filing Measures, senior managers of private fund managers shall have more than 5 years of relevant work experience. The work experience of the senior managers recognized by the Association here is basically the same as that of the actual controller, and they all need to meet the requirements of “senior management positions in formal financial institutions or actual investment management”.

According to Article 10 of the “Registration and Filing Measures” and Article 6 of the “Private Fund Manager Registration Guidelines No. 3 - Legal Representatives, senior managers, Executive Partners or their Appointed Representatives“ (referred to as “Registration Guidelines No. 3”), the person in charge of compliance risk control should have more than 3 years of investment-related risk control experience. The risk control work experience recognized by CICAP is more relaxed than that of other executives, as long as the work experience in financial institutions, private fund managers, law firms, accounting firms engaged in compliance management, supervision and audit, risk control, etc., can be recognized.

Regarding the work experience of the person in charge of compliance risk control, although the regulations are relatively loose, there is one point that needs to be noted in practical operation: If the person in charge of compliance risk control used to work as a private fund manager, the Association will have certain requirements on the management scale of the manager, usually requiring the private fund manager who used to work to manage a scale greater than 30 million yuan, so as to ensure that the person in charge of compliance risk control really has substantial experience and ability in performing the duties of risk control.

2. Performance requirements for executives responsible for investments

According to the provisions of Article 10, paragraph 5 of the “Registration and Filing Measures” and Article 7 and Article 8 of the “Registration Guideline No. 3”, there are performance requirements for senior managers responsible for investment. The performance requirements for the investment officer of the private equity fund manager are: the investment performance of more than two consecutive years in the recent 10 years, and the management scale of a single product or a single account is not less than 20 million yuan; The performance requirements for the investment officer of the private equity fund manager are: at least 2 investments in the equity of unlisted enterprises in the last 10 years, the cumulative investment fund is not less than 30 million yuan, and at least 1 successful exit through IPO, equity merger or transfer.

According to the practical experience of the author's team, although the CFA has not made explicit provisions on performance, in the actual audit process, executives with poor investment performance may be required to make explanations by the CFA.

03. Summary

The author's team successfully undertook a case of change of actual control rights of a private fund manager in Beijing, and once again sorted out the regulations and window guidance issued by the China Foundation Association. At present, the change of actual control rights of private fund managers has the characteristics of tight time limit, complicated verification, complicated change process and strict supervision requirements. The author suggests that institutions that intend to change the actual control of private fund managers should seek effective assistance from professionals to promote the efficient and smooth completion of the actual control change.