How to prepare private equity investment fund filing documents - "Prospectus"

2023-01-10 11:25:40 · Yang Chunbao,Sun Zhen

According to the relevant provisions of Article 23 of the "Measures for Fundraising", the content of promotion materials for private equity funds should include: the name and type of the fund, the basic information of the fund manager, the public information of the fund manager and the fund of the Fund Industry Association, fund custody, Service providers, external investment advisors (if any), fund outsourcing, fund investment, strategies and restrictions, fund return and risk matching, fund risk disclosure, fund raising account and its supervisory agency, and fees borne by investors/ Fee rate and its important rights, main fees/fee rates borne by the fund, content/method/frequency of fund information disclosure, tips not to be reproduced/circulated, statement that the partnership (share) agreement cannot replace the partnership agreement/articles of association (applicable to corporate / Partnership Fund), etc. Based on this, Fund A produced the Prospectus, which includes seven modules including important reminders, interpretation, basic information of the fund, fund overview, fund manager and management team, fund risk disclosure, accounting and information disclosure. in particular:

01 Important Hint

Important reminders include: pointing out that this document does not constitute an offer/invitation for an offer, the manager has the right to decide whether to accept the investment, the fund shares obtained by the investor cannot be re-sold/distributed, the fund does not promise to guarantee the capital/income, investors should bear the responsibility investment risks, and this brochure shall not be reproduced or circulated. We understand that the "Important Reminders" section is to some extent the manager's "protective umbrella": "No commitment to guarantee capital/income" is to clarify that there is no rigid redemption of the fund; and "Potential investors are prohibited from secondary sales/distribution, and Prohibition of reprinting/circulation of the prospectus" can ensure to a certain extent that the red line of "spin-off fund share sales" and "public offering" will not be touched; clarifying that "the prospectus does not constitute an offer/invitation for an offer" will allow the manager to legitimately reject non-qualified investors.

02 Interpretation

As the name suggests, the definition is to define the basic connotation of funds, partnership agreements, managers and their teams, custodians, general/limited partners, management fees, fund fees, etc. It should be noted that according to the association’s self-regulatory rules, management fees can only be collected by registered private equity fund managers. Therefore, in the definition of “management fees”, it should be avoided that the entity without fund manager qualifications collects management fees Content. In addition, except for the circumstances where custody is required by law[1], private equity funds can choose not to have custody, but it should be clearly stipulated in the "Fund Contract" and agreed to set up a fund share holding company that can effectively perform the duty of safe custody of fund assets. Institutional arrangements such as the daily organization of the National People's Congress or the fund trustee committee (contractual funds), or agreement on institutional measures and dispute resolution mechanisms to clearly guarantee the safety of fund assets (corporate/partnership funds). However, contractual funds and funds that indirectly invest in underlying assets through SPVs such as companies and partnerships require mandatory custody.

03 Fund Basic Information

Fund basic information includes fund name, organizational form, place of registration, duration, fund size, minimum subscribed capital contribution, qualified investors, fund manager, fund custodian, and fund management fees. It is worth mentioning that the "Prospectus" of corporate and partnership funds should include two durations, one is the duration of the company or limited partnership as the carrier of the fund, and the other is the duration of the fund . The former should start from the date when the company or partnership obtains the industrial and commercial business license, while the latter usually starts from the closing date of the fund’s initial capital contribution (some funds also agree on the starting date as the date of filing and approval). The standard of qualified investors should not be lower than the provisions of relevant laws and regulations.

04 Fund Overview

Including the fund organizational structure (executive partners, investment decision-making committee, the "troika" of partner meetings, and risk restraint mechanism), fund management institutions, fund custodian institutions, fund investment (investment principles, investment methods, investment scope, Investment restrictions, investment process, investment exit, etc.), fund assets, fund income/fees/performance compensation/distribution, fund taxes, dissolution and liquidation, etc. We understand that the content contained in the fund profile is the key review content of the Association, for example: the investment scope of the fund should avoid the "Private Equity Fund Filing Guidelines (2019 Edition)" ("Filing Guidelines") that are considered borrowed ( deposit) and loan activities. [1] In addition, according to the "Filing Instructions", the "Prospectus" and other promotional materials should disclose in detail the main business of the fund's main intended investment projects (if any), valuation calculations, the purpose of the fund's investment funds, and the proposed exit method.

05 Fund manager and management team

Introduction of the fund manager (basic information of the manager and shareholder information), introduction of the core personnel of the management team. Among them, the basic information of the manager mainly includes the establishment time of the manager, registered capital, main business, the number and scale of funds under management, as well as the manager's employees and investment philosophy. The shareholder information of the manager can be relatively simplified, mainly including the name of the shareholder, registered capital (only for legal person shareholders), main business and background information, etc. We understand that for a fund, the success or failure of its investment largely depends on the experience and ability of the core management team. Therefore, in this section, we should focus on the academic background and relevant investment experience of the core members of the management team.

06 Fund risk disclosure

Fund risks are divided into special risks and general risks. Special risks include the risk of fund filing failure and the risk of illegal partnership agreements. General risks include risks in fundraising failure, fund operation and management, market, liquidity, investor credit, etc., as well as capital loss risks. For specific content, please refer to the risk disclosure system in the book "Operational Practices of Risk Prevention and Control of Private Equity Investment Funds" by Yang Chunbao's lawyer team.

07 Accounting and Information Disclosure

The bookkeeping and accounting year, the time for auditing and disclosing the annual report, the method for fund investors to check accounts, and other information disclosure-related content should be specified. The bookkeeping year and fiscal year are generally the calendar year, and the first fiscal year should start from the day when the fund’s initial capital contribution is completed and end on December 31 of the current year. Regarding the disclosure time and content of fund annual reports and semi-annual reports, the Association has clear rules and will not repeat them here. It is worth mentioning that this part should clarify the method of information disclosure (including official website of the association, fund manager/fund official website or WeChat official account, email delivery, etc.), which can be used together with the corresponding agreement in the "Fund Contract" as a basis for future litigation. or evidence in arbitration to demonstrate the proper performance of the obligation to disclose information.

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How to prepare private equity investment fund filing documents - "Prospectus"