NDRC's New PE Regulations: Equity Investment Enterprises Must Not Promise Fixed Returns

　　The National Development and Reform Commission (NDRC) recently issued the "Notice on Promoting the Standardized Development of Equity Investment Enterprises," which sets out standardized requirements for national equity investment enterprises in five aspects: establishment and capital raising and investment, risk control, management institutions, information disclosure, filing management, and industry self-discipline. This is China's first national management rule for equity investment enterprises.
　　The Notice requires that equity investment enterprises established in the form of limited liability companies or joint-stock limited companies can implement self-management by establishing an internal management team, or they can adopt a entrusted management method to entrust their assets to other equity investment enterprises or equity investment management enterprises for management.
　　The capital of equity investment enterprises can only be raised through private placement to specific qualified investors with risk identification and risk-bearing capabilities. Capital raisers must fully disclose investment risks to investors and must not promise fixed returns. For investors who are non-legal entities such as collective fund trusts and partnerships, the verification of whether the ultimate natural persons and legal entities are qualified investors should be clarified, and the calculation of the total number of investors should be clarified. However, equity investment parent funds that meet relevant conditions can be regarded as a single investor. The investment scope of equity investment enterprises is limited to the equity of enterprises in non-public transactions, and idle funds can only be deposited in banks or used to purchase fixed-income investment products such as government bonds.
　　In terms of risk control, the Notice requires that equity investment enterprises should reasonably diversify their investments, and funds must not be used to provide guarantees for enterprises other than the invested enterprises; when investing in affiliated enterprises, the investment decision-making should implement an affiliated party avoidance system; the articles of association or partnership agreements of equity investment enterprises and their entrusted management institutions should specify performance incentive mechanisms and risk constraint mechanisms.
　　In terms of information disclosure, the Notice requires that equity investment enterprises, in addition to disclosing investment operation information to investors, should submit annual business reports and financial reports to the filing management department within 4 months after the end of each fiscal year. In the event of major events during the investment operation process, they should report to the filing management department in a timely manner.
In terms of filing management, the Notice requires that equity investment enterprises with capital scale of 500 million yuan or equivalent foreign currency should be filed with the National Development and Reform Commission; equity investment enterprises with capital scale of less than 500 million yuan or equivalent foreign currency should be filed with the filing management department determined by the provincial people's government.
　　The Notice requires the establishment of a national equity investment industry association to conduct self-discipline management of equity investment enterprises and their entrusted management institutions in accordance with relevant laws, regulations, and the Notice.