Comments: The richness of PE fund

Li Shou in the Gome incident, the role of Bain has been doubly concerned. It is generally believed that PE funds in general in the company occupies a minority stake, relying on the company's management team to operate the company, the fund to provide value-added services outside the joint realization of the company's development. In this way, the PE fund is like the younger brother who earns money from the big boss. The PE fund which invests in the stock right of unlisted company is doing so in the normal condition, usually only from the technology (such as corporate governance, internal control, etc.) to improve the company, not in the company's internal revolution, is a reformist, not a revolutionary party.　　But in fact, if all funds in any case are reformists, the enrichment of PE fund is castrated, and the risk of PE fund is neglected. In addition to investing in unlisted companies equity in the PE fund, there is also a particularly important force in the market, that is, the acquisition of funds. Buy-Out funds and the PE funds invested in unlisted companies have different practices, and some aggressive buy-out funds have the nickname of Barbarians, who are completely not moderate reformers, but rather revolutionary parties. Carl Icahn, the famous American activist, Icahn, for example, who controls a radical hedge fund group. If Icahn thinks the company's share price is undervalued, he will use capital to buy the company's shares, and then ask management to restructure the company to push up the share price. He joined the Yahoo board in 2008, when Yahoo had made a controversial decision to reject acquisitions from Microsoft. At the beginning of the year, the three-member director of video game developer Take-two, under the pressure of Icahn, will resign from the directorship this year, including Ben Vander, the company's chief executive, Ben Feder.　　Similar cases have occurred in Chinese companies, and the scramble for control of TPG and the new Japanese lease is typical. The PE fund, which invests in the equity of unlisted companies, intervenes in the internal affairs of the company, usually through the channel of "one vote veto". General Fund investment provisions, will require investors in the company's major issues (such as business, investment, executive nomination, etc.) should obtain the consent of the investors. The fund is usually a dour Mr. No, but the fund has no initiative to promote the passage of a bill. From this perspective, PE funds just wear defensive armor, not offensive weapons, the company's founder and senior management team (usually overlapping) is relatively safe. But even so, the PE fund is not under any circumstances are docile sheep, considering that after all, the fund and the company bundled together, the company's development and its solidarity, and the Fund and the traditional small shareholders, traditional small shareholders lack of effective legal weapons (especially under our national company Law), But the fund is armed to the teeth on investment terms, so the inherent dangers should be understood. The risk may occur in several situations, one is the company's development, including the company's executive ability, business, listing options, etc.In all respects, if inconsistent with the Fund's thinking, the fund is likely to push the company to its will by reversing the power of its veto. In practice, there have been many cases of whether listing, timing of listing and so on, and the struggle between fund and company founder. The second situation is that there may be contradictions within the company's shareholders, and the fund is likely to use its voting power to support the party in its favour, especially if the company's internal equity is more fragmented. In the third case, the fund usually has the mandatory right to sell (drag along), which is most damaging when the interests of the Fund and the founders are inconsistent. For example, there are also cases in which PE funds do not want to be listed by the investment enterprises, and the other enterprises that forced the founder to sell the company to PE funds.　　The foregoing situation is the situation that may happen before the listed enterprise is in the market, after the enterprise listed, the shareholding is more dispersed, the game subject is more pluralistic, so the status of the PE fund is more prominent, its influence can not be neglected even more. (author of Dacheng law firm, senior partner)