[1] Article 30 of Guideline No. 2 stipulates that a registered corporate or partnership private equity fund shall terminate the entrusted management relationship through consensus between the investor and the private equity fund manager and continue to operate as a non-fund company or partnership. If any, the name and business scope shall be changed in a timely manner, and "fund" or other misleading words shall not be retained, and private equity fund managers shall not serve as its shareholders or partners. Within 10 working days from the date of change, the private equity fund manager shall apply to the association for fund cancellation.

A company or partnership that exists as a non-fund form may not continue to operate in the form of a fund, may not entrust a private equity fund manager to manage it again, and may not apply for registration as a private equity fund again.

There is a serious conflict between the fund manager (hereinafter referred to as the "manager") and the fund investors (hereinafter referred to as the "investor"), and the fund is in a "deadlock"

At any time after the completion of the registration of the equity fund in the China Asset Management Association, there is an irreconcilable conflict between the manager and the investors, but this does not exist in accordance with applicable laws and regulations, the self-regulatory rules of the China Asset Management Association, or the Partnership Agreement. (The manager is the executive partner of the fund)/The stipulation in the "Entrusted Management Agreement" (the manager is not the executive partner of the fund) may remove the manager.

 Equity funds cannot withdraw in time

During the equity fund exit period, the equity fund cannot withdraw from the invested project in time and the investor refuses to extend the period. In recent years, due to the unsatisfactory global political and economic environment and three years of severe COVID-19 lockdowns, the entire private equity investment field has fallen into an "exit dilemma". Many investment projects have been unable to exit as scheduled when the equity fund exit period expires. Investors are unwilling to accept the extension of the fund due to various considerations (such as unwillingness to pay fund management fees, dissatisfaction with the manager's management level, etc.).

 The manager was canceled and could not appoint a new manager in time

According to the Regulations on the Supervision and Administration of Private Investment Funds, before canceling the registration of a manager, the registration and filing agency shall notify the manager to liquidate the fund assets or transfer the fund management responsibilities to other registered private fund managers in accordance with the law. That is to say, when canceling the fund, the manager needs to liquidate the registered fund or find a "successor" to dispose of it. In business practice, there are a large number of cases where managers are forcibly canceled by the China Association of Asset Management because they have lost contact or do not meet the qualifications required by the China Association of Asset Management. In this case, it is often difficult to find a suitable new manager in the short term. Come and take over. The provisions of Guideline No. 2 on "converting to non-fund funds" allow equity funds to convert to non-fund forms to continue to exist and operate. This is especially true when investors are faced with the cancellation of the manager of the fund they invested in and the inability to find a new manager in time. A choice.

Existing “channel” funds[2]

Among the currently registered funds, there may still be some "channel-type" funds that have not yet been rectified. The China Fund Management Association stated that if this part of the existing channel funds involves major changes, the China Fund Management Association may require them to make rectifications based on the feedback from the China Fund Management Association. Therefore, we understand that for existing "channel-type" equity funds, "converting to a non-fund base" operation may be the best choice: first, you can go to the "channel" in an open and honest manner (that is, to terminate the entrusted management relationship with the manager) , and secondly, it can continue to exist and operate in the form of a non-fund partnership.

[2] "Channel Fund" in this article refers to a registered partnership equity fund manager who entrusts its main responsibilities for fund raising, investment, management and withdrawal to a person who is not registered with the Fund Industry Association or is not qualified to serve as a fund manager. A fund operation model in which other entities perform the required tasks, but the registered manager does not actually perform the manager's duties. Because this model actually provides other unqualified entities with channel services to avoid regulatory requirements such as investment scope, leverage constraints, and investor thresholds, it is called a "channel fund."

The manager is the general partner of the equity fund

General partner of the manager's non-equity fund

According to the list of filing materials released with Guideline No. 2, and combined with the results of our telephone consultation with the China Fund Management Association, fund liquidation is required before converting to a non-fund base. The materials that need to be submitted include fund liquidation materials and fund identity cancellation materials. Among them, the completion of liquidation should comply with the provisions of Article 57 [3] of the "Private Investment Fund Registration and Filing Measures" and Article 28 [4] of Guideline No. 2. The materials that should be uploaded include the fund liquidation stamped with the official seal of the manager. Letter of commitment and previous fund liquidation reports. The liquidation report should include the distribution of fund assets and have the signatures of the manager, custodian or investor. In addition, the materials that should be submitted for fund identity cancellation include the changed business license or screenshots of the national enterprise credit information publicity system and other supporting materials.

[3] Article 57 of the "Registration and Filing Measures for Private Equity Funds" If the private equity fund contract is terminated, the private equity fund manager shall promptly liquidate the private equity fund in accordance with the fund contract. 10 working days from the date of completion of the private equity fund liquidation Submit liquidation report and other information to the association within the day. If the liquidation cannot be completed within a certain period of time, a liquidation commitment letter, liquidation announcement and other information shall be submitted to the association within 10 working days from the date of commencement of liquidation.

After the private equity fund begins to liquidate, it may no longer raise funds and may no longer make investments in the name and manner of the fund.

[4] "Private Investment Fund Registration Guidelines No. 2 - Private Equity and Venture Capital Funds" Article 28 If a private equity fund encounters any of the following circumstances, it shall be liquidated:

(1) The survival period expires and is not extended;

(2) Circumstances occur that require termination as stipulated in the fund contract;

(3) The investor and private equity fund manager decide to terminate the fund contract through consensus;

(4) Other circumstances stipulated by laws, administrative regulations, China Securities Regulatory Commission and the Association.

After the liquidation of a private equity fund is completed, the remaining fund property can be distributed to investors in the form of monetary funds, or, with the investor's consent, in the form of physical assets.