PE management becomes a hot topic at the Two Sessions: the establishment of regulatory systems is imminent

　　Among numerous proposals concerning the capital market, the management of private equity funds has become a hot topic among representatives and committee members of the Two Sessions. Recent proposals suggest that strengthening the regulatory system for private equity funds is urgent.
　　The proposal points out that private equity (PE) funds are one of the mainstream direct investment tools internationally. Developing private equity funds helps enrich the levels of China's capital market, providing financial support for economic development; it also improves the financing environment for SMEs, promoting their growth and strengthening their corporate governance structures, thereby promoting the rational adjustment of China's industrial structure. After years of development, China's private equity funds have become increasingly standardized.
　　Relevant statistics show that the scale of private securities funds in China, which have long been in a gray area, is at least over 1 trillion yuan, and the total scale of private equity funds in the capital market may be between 700 billion and 800 billion yuan, already becoming a very important investment entity.
　　The proposal believes that private equity funds are the direction of future fund industry development. Private equity investment funds are beneficial to the development of private equity, beneficial to the development of small and medium-sized, high-risk enterprises, and also play a significant role in the development of the capital market. The "Securities Investment Fund Law," which began to be revised in 2008, has not yet been submitted to the National People's Congress for deliberation after more than three years. Including private equity funds under regulatory oversight is essential for maintaining the healthy development of the stock market.
　　To this end, the proposal suggests that, firstly, the revision of the "Securities Investment Fund Law" should be accelerated, bringing private equity funds under key regulatory oversight, bringing them from underground to above ground, and promoting their orderly development through public, legal, standardized, and effective regulation.
　　Secondly, a flexible and effective regulatory system should be established. The proposal points out that, based on foreign experience, the regulation of private equity funds mainly focuses on regulating the qualifications of fund sponsors and fundraising methods, as well as regulating special investors such as pension funds, but their investments are not subject to special restrictions. Under the current imperfect legal and regulatory framework in China, clarifying the regulatory authorities is essential for promoting the healthy development of the industry. The initiation, establishment, operation, and exit of private equity funds are closely related to the functions of the China Securities Regulatory Commission (CSRC). The proposal suggests that we can consider drawing on the US experience and establishing an investment regulatory system with the CSRC as the main responsible agency, assisted by the NDRC and the Ministry of Commerce. For matters involving other ministries and commissions, the CSRC can resolve them through consultation or seek opinions from other ministries and commissions.
　　Thirdly, improve the exit mechanism for private equity funds. Based on the construction and development of regional over-the-counter markets, connect them with the currently lower-level dealer transfer system of the capital market, and establish a unified, interconnected, and decentralized modern over-the-counter trading market. At the same time, consider establishing an over-the-counter trading market for listed company equities that are already listed but are subject to lock-up periods.