Legal Trends in the Private Equity Fund Industry (November 2025/Issue 93)
Legal Service Trends of State owned Assets and Funds Research Center
1
Recently, Jiaoying Medical Devices (Shanghai) Co., Ltd. (hereinafter referred to as "Jiaoying Medical") announced the completion of its Series A+ financing, invested by Shanghai Pudong Venture Capital Co., Ltd. (hereinafter referred to as "Pudong Venture Capital"). The legal team led by Yang Chunbao provided full legal services to Pudong Venture Capital in this transaction, including legal due diligence, drafting and negotiating a complete set of transaction documents, ensuring the smooth completion of this investment.
2
Recently, Shanghai Clinical Translation Seed Venture Capital Partnership (Limited Partnership) (hereinafter referred to as the "Clinical Translation Seed Fund") completed its business registration. The fund was established with Shanghai Pudong Angel Fund of Funds, a subsidiary of Pudong Venture Capital, as the cornerstone investor, and Futeng Capital, a subsidiary of Shanghai Guotou, serving as the fund manager. The legal team of Yang Chunbao, commissioned by the Angel Fund of Funds, conducted comprehensive legal due diligence on Futeng Capital and the proposed Clinical Translation Seed Fund. Simultaneously, they participated in the drafting, review, and negotiation of the fund's Limited Partnership Agreement (LPA) and related transaction documents.
3
On November 8th, a seminar on key issues in the latest judicial interpretation of the Company Law was successfully held at the Law School of Beijing Foreign Studies University. The seminar brought together experts and scholars from legislative bodies, judicial organs, universities, law firms, and other fields. Attorney Yang Chunbao was invited to speak specifically on repurchase clauses in the first session. Drawing on his experience handling over 30 cases involving performance-based agreements, Attorney Yang commented on the progress and limitations of the repurchase-related clauses in the draft judicial interpretation of the Company Law from the perspectives of the validity of performance-based agreements, the selection of the repurchase entity, performance-based schemes in commercial practice, and various designs of performance-based clauses. He pointed out that the draft judicial interpretation of the Company Law did not address the nature of the repurchase right of the capital increase party, which is most common in commercial practice, or the controversial issues of "limited to equity" or "limited to equity value," and "management rights and performance-based obligations," and offered suggestions on these issues.
4
Lawyer Yang Chunbao's team assisted a Shanghai-based biotechnology company in successfully completing a targeted capital reduction. The company failed to achieve its IPO due to pandemic-related lockdowns, but its operations were still relatively sound. However, neither the company nor its founding shareholders were able to repurchase all the shares from investors. If they simply gave up and allowed investors to initiate arbitration, not only would the founders' years of hard work be wasted, but the company's more than one hundred employees and their families would also be significantly affected. After repeated analysis and research, lawyer Yang Chunbao and the founders decided to communicate with investors about a targeted capital reduction plan with phased repurchase payments. Although this plan encountered many difficulties during communication and implementation, it ultimately gained the understanding and support of all shareholders. Recently, the company successfully completed the registration change for the targeted capital reduction.
5
Recently, the legal team represented by Attorney Yang Chunbao won a case brought by the Shenzhen International Arbitration Commission against an individual investor suing a well-known Beijing private equity fund manager over a dispute concerning a private securities investment fund contract. The team, through extensive research into the securities investment targets of the fund in question and in-depth analysis of the fund manager's investment decisions regarding those targets, incisively pointed out in court that the manager had seriously violated its due diligence obligations in post-investment management, ultimately recovering more than half of the client's investment losses.
Association announcements and notices
On November 19, 2025, the Asset Management Association of China (“AMAC”) issued a “Notice on the Release of the Credit Information Report of Private Fund Manager Members for the Third Quarter of 2025”. The notice clarifies that, starting from November 19, 2025, private fund managers who became members of the AMBERS platform before the third quarter of 2025 can access their third-quarter credit information report through the AMBERS platform.
On November 28, 2025, the Association issued an announcement regarding the cancellation of the registration of three private fund managers, including Juxiang (Shandong) Private Fund Management Co., Ltd., due to their inability to continuously meet the registration requirements. The announcement required the cancelled institutions and related parties to properly dispose of the managed fund assets and protect the legitimate rights and interests of investors. On the same day, the Association also issued an announcement regarding the cancellation of the 45th batch of missing private fund managers' registrations, stating that four institutions, including Zheyin Juxin (Hangzhou) Capital Management Co., Ltd., failed to contact the Association and submit a report within one month of the expiration of the public notice period, thus meeting the cancellation conditions. The Association subsequently cancelled their fund manager registrations.
Business Practice
Since 2025, the model of "first securing control of a listed company, then raising funds to complete the acquisition" (i.e., "investment before fundraising") by private fund managers ("GPs") has been validated for feasibility through two benchmark transactions, providing a new path for private equity M&A transactions. The core logic of this model is that the GP first reaches an acquisition agreement with the original shareholders of the target company, and then raises funds through a special fund to complete the transaction. This reduces the GP's financial pressure while providing LPs with clear investment opportunities. Its successful implementation requires grasping three core elements: price compliance, seamless integration of stakeholders, and the GP's strength. The following case studies and key points illustrate this:
1
Benchmark Transaction Case Analysis
Hefei Ruicheng's Acquisition of Honghe Technology
—A Textbook Case Study of Successful Price Lock-in
In June 2025, Hefei Ruicheng (the GP in this case) first reached an agreement with the original shareholders of Honghe Technology to acquire 25% of the shares to gain control. Subsequently, a special fund, "Ruicheng Hongtu," was quickly established, and Anhui state-owned assets-based LPs were introduced to complete fundraising and fund registration. In October, a supplementary agreement was signed, clarifying that the special fund would take over the acquisition, with the price set at more than 95% of the closing price on the trading day prior to the signing of the agreement, which met the regulatory requirement of "not less than 90%." At the same time, the original shareholder, Zhang Shujiang, issued a "Letter of Commitment Regarding Waiver of Voting Rights," voluntarily waiving all voting rights corresponding to his shares in Honghe Technology to ensure the stability of the special fund's control over the listed company.
Qiming Venture Partners acquires Tianmai Technology
—Price adjustment turns crisis into opportunity
In January 2025, Qiming Venture Partners (the GP in this case) announced the acquisition of control of Tianmai Technology. Initially, it agreed with the original shareholders to differentiate pricing. However, due to the surge in the target stock price in May, the original price was lower than the regulatory requirement of "not lower than 80% of the stock price before the signing of the supplementary agreement". Therefore, the two parties to the share transfer renegotiated in October to increase the transfer price to meet the regulatory requirements. At the same time, it was agreed that December 30, 2025 would be the final deadline for delivery. The transaction is currently progressing smoothly.
2
Key practical points
01
Price compliance is the bottom line. The acquisition price must meet regulatory requirements, and the price at the time of signing the supplementary agreement shall not be lower than 80% or 90% of the closing price of the previous trading day (depending on the scenario) to avoid deviating from the market price and harming the interests of minority shareholders of the listed company.
02
A smooth transition between the acquiring and LP entities is essential. The GP needs to secure potential LPs in advance and complete the establishment, registration, and capital contribution of the special fund to ensure a smooth transition from the GP to the fund and avoid any funding gaps.
03
The strength of the GP is the core guarantee. By relying on industry background (such as Hefei Ruicheng being backed by Chery Capital) or industry reputation (such as Qiming Venture Partners being a leading PE firm), a foundation of credit is established to gain the trust of the original shareholders of listed companies and fund LPs.
04
Risk control must be in place. In the initial stage, avoid signing rigid agreements that stipulate "prices cannot be adjusted" and agree on price adjustment mechanisms in advance; lock in control and transaction pace through clauses such as voting rights waiver and delivery deadlines.
Local policies
On November 5, 2025, the People's Government of Qingpu District, Shanghai, issued the "Shanghai Qingpu S Fund Management Measures (Trial)" ("the Measures"), which came into effect on December 10, 2025, and will remain valid until December 9, 2027. The Measures aim to regulate the establishment and operation of Shanghai Qingpu S Funds ("Qingpu S Funds"), improve the liquidity of the private equity market, and promote the optimization of the industrial ecosystem. The core content covers the following aspects:
1
Fund Positioning and Management System
The Qingpu S Fund is a government investment fund established by the Qingpu District Government and operated in a market-oriented manner. Its core objectives are to support enterprise development and improve the liquidity of the equity market. The fund adopts a "supervision-review-management" separation system: an investment management committee (Investment Committee) chaired by the deputy district head in charge is responsible for major decisions; a professional institution is commissioned to form an expert review panel (with investment experts accounting for no less than half) to conduct independent reviews; and daily operations are handled by a qualified fund management institution.
2
Funding sources and operating rules
The funds primarily come from state-owned enterprises under the Qingpu District government, government funds at all levels, and other compliant funds, with contributions made in batches according to the investment progress. The fund has a 10-year duration (5-year investment period and 5-year exit period), and any adjustments to its size require approval from the district government. Investment methods include participating in sub-funds primarily through the acquisition of secondary market shares, directly acquiring secondary market fund shares, and investing idle funds for value preservation (such as government bonds and bank deposits). In principle, the investment ratio in a single sub-fund will not exceed 30%, the investment amount will not exceed 100 million yuan, and the investor will generally not be the largest investor.
3
Risk control and assessment mechanism
The Measures explicitly prohibit funds from engaging in guarantee, entrusted lending, or investing in secondary market stocks (except in compliant circumstances); they must select qualified custodian banks for fund supervision and establish a related-party transaction management system to prevent the transfer of benefits. Simultaneously, a full-process performance management system will be established, setting quantitative indicators based on the achievement of policy objectives, and strengthening incentives and constraints through adjustments to management fees and the distribution of excess profits. Fund management institutions must regularly submit operational reports and financial statements, and accept supervision from finance, auditing, and other departments.
4
As a special measure for local government to regulate the development of secondary funds, its promulgation provides clear guidance for the operation of secondary funds in Qingpu, helps to attract high-quality private equity resources, improves the liquidity of the equity market by revitalizing secondary shares, and provides capital support for regional industrial upgrading.
Typical Cases
Case 1
Management fee payment determination for manager's dereliction of duty
If a private fund manager has fulfilled its core management obligations during the fund's investment period, it is entitled to collect management fees for the corresponding period. However, if a fund manager fails to fulfill its management responsibilities during the fund's exit period due to the cancellation of its manager qualification, it is not entitled to claim exit period management fees, and any portion of the collected fees exceeding the investment period management fees should be refunded.
Main Facts
Party A is a limited partnership private equity fund, and Party B is its general partner and executive partner (possessing a private equity fund manager qualification). The partnership agreement stipulates that Party B is responsible for fund investment, management, and exit, and charges a management fee of 0.1% per annum based on the limited partners' paid-in capital, with the management fee payable in advance for the first three investment periods. After Party A paid Party B a total of over RMB 1.44 million in management fees, Party B's fund manager qualification was revoked due to abnormal operations, and Party B failed to fulfill its obligations regarding investment exits and fund liquidation, resulting in Party A's investment loss of nearly 80%. Party A therefore sued Party B, requesting the return of the received management fees and confirmation that no further payment of the remaining fees is required.
Referee's point
The court held that Party B had fulfilled its management obligations during the investment period by using the fund assets to invest in the target company and was entitled to collect management fees for the first three years of the investment period. After calculation, the RMB 1.44 million already paid by Party A just covered this part of the fees, so Party A's request for a refund of management fees was not supported. However, after Party B's fund manager qualification was revoked, it failed to fulfill its management responsibilities during the fund exit period, and the payment prerequisites stipulated in the Partnership Agreement no longer existed. Therefore, the court confirmed that Party A was not required to pay the remaining management fees.
Look out
Determining the Boundary Between Fund Asset Independence and Unjust Enrichment
Referee Summary
Although private equity fund assets are independent, if a creditor obtains the funds in question through court enforcement based on an effective judgment, and the enforcement action has not been negated through multiple remedies, the creditor's acquisition of the funds is legal and does not constitute unjust enrichment.
Main Fact
Company 1, the manager of "XX No. 16 Fund," had over 490,000 yuan seized from its custodian account by the Beijing Third Intermediate People's Court to settle its own debt to Mr. Ruan (a debt already established by an effective arbitration award). Company 1 claims that the funds in the account are independent fund assets, and that Mr. Ruan's acquisition of the funds has no legal basis. Company 1 is suing for the return of unjust enrichment and compensation for interest losses. Previously, Company 1's objections, appeals, and petitions regarding the enforcement action have all been rejected.
Referee's point
The court held that Ruan obtained the funds based on the enforcement of an effective judgment, and the relevant enforcement case had been closed as "enforcement completed." Furthermore, none of Company 1's multiple enforcement remedies were supported, and the effective enforcement document had legal effect. The issue of the independence of the fund's assets had been examined in the enforcement proceedings, and Company 1's claim for unjust enrichment lacked factual basis. Therefore, all of its claims were dismissed.
Look out
For fund investors, it is recommended to strengthen supervision of the fund manager's investment activities. If it is found that the fund manager's own assets are commingled with the fund's assets, investors should actively collect evidence and seek legal recourse to avoid investment losses.
Case 3
Restrictions on the Application of Creditor Subrogation Rights in Private Placement Repurchase Disputes
Referee Summary
For private equity fund investors to exercise their right of subrogation, the fund manager must have a legitimate and due claim against the target company. If the manager does not directly hold shares in the target company and the repurchase conditions are not met, the investor's claim for repurchase funds lacks basis.
Main Fact
Mr. Shi invested in a special private equity fund (i.e., the fund in question), which indirectly held shares in a company in Zigong through a partnership. The partnership had previously entered into a framework agreement with the Zigong company stipulating a repurchase clause. Because the fund failed to achieve its expected returns, Mr. Shi, after obtaining arbitration confirmation of a claim against a Shanghai company for his investment principal and expenses, filed a subrogation lawsuit against the Zigong company and its shareholders, alleging that the Shanghai company had failed to exercise its repurchase right.
Referee's point
The court held that the Shanghai company did not directly hold shares in the Zigong company, and there was no evidence to prove that the repurchase conditions stipulated in the Framework Agreement had been met. Therefore, the Shanghai company did not have a legitimate and due claim against the Zigong company. Furthermore, the fund assets were independent of the manager's assets, and even if there were repurchase payments, they should be included in the fund assets in question and distributed after liquidation, rather than being directly paid to individual investors. Therefore, the court dismissed all of Mr. Shi's claims.
Look out
The exercise of the right of subrogation requires the core condition that "the debtor has a legitimate claim against the sub-debtor".
First, please LoginComment After ~