"Hunt" investment project is PE instinct

"Help people make a lot of money and drink some soup", this is a number of PE investment personnel to find a good project after the way; refraction of the PE industry internal wind control and external supervision of the problem

"For LP (limited partner) to make so much money, by the way to drink some soup is understandable." "A PE (private equity fund) insider likened the GP to" earning money ".

"Hunt" investment project is PE instinct, see as the financing side of the LP Eat Meat, Fund trustee GP Drink soup has become the secret of open circle. The so-called soup is the first-line investors ride with their own capital investment projects to benefit, but such regulations will sometimes go astray, such as investors and the investment enterprises to achieve a tacit understanding to get the shadow income. Such unspoken rules are exposed to the public eye as Chen Shuiqing, the original president of Fosun, was arrested for commercial bribery.

Recently, the details of the Chen Shuiqing case were disclosed by the media. A number of industry insiders told the "First financial daily" reporter, Chen Shuiqing Some of the practices in the industry is not uncommon. "Drink soup" ridicule reflects the current PE industry internal wind control and external supervision of the problem. For example, PE personnel receive the "commission" of the invested enterprise or the "advance investment" similar to the first market mouse storehouse, these behaviors walk in the gray area, if the suspected illegal also has the difficulty of obtaining evidence.

Covert benefit Delivery

Chen Shuiqing is accused of bribery of non-state workers has been prosecuted, and the recent revelations of the details of the case, the "Venture veterans" is also "income-generating experts." The approach includes: before the company investment, Chen Shuiqing personal control of the "shadow Company" at a lower price shares, raise the investment price of the enterprise, there is a suspicion of misappropriation of Fosun funds, to the investment companies to ask for shares.

As the PE industry is openly suspected of commercial bribery in the first case, the case of informants from Fosun to belong to Fosun Medicine (600196.SH,00656.HK). Fosun in charge of the relevant person before the reporter said, Chen Shuiqing "Mouse warehouse" behavior is the company's initiative to find, this can be low-key treatment, but from the opposition industry unspoken rules, transparent governance perspective, the final choice to the judicial department.

Beijing surplus law firm partners, lawyers Shili told the reporter, from the current public information, Chen Shuiqing suspected of using the position to facilitate access to a series of benefits.

According to the Supreme People's Procuratorate, the Ministry of Public Security Regulations, companies, enterprises or other units of non-state workers bribery more than 5000 yuan, will be filed for prosecution.

A familiar with the PE circle of the legal profession told the reporter, Chen Shuiqing operation techniques in the PE industry is not uncommon, "in the Public fund field you can think of ' rat Cang ' behavior, in the field of PE will happen." The difference is that the former infringes on a specific majority of investors, while the latter is an infringement of the particular LP's interests. ”

Talk about PE investors received the benefits of transport, a number of PE industry insiders to our correspondent, "Financing consultancy fees" is a hidden form. For example, a PE fund to invest 50 million yuan to a business, before the investment entrepreneur and PE organization of the investment managers agreed to the successful financing of the investment manager for 4% of the Project Commission, and in practice, the investment manager only need to find a family or friends to open a financing consultancy company, With the investment enterprise signed the relevant financing consultancy agreement, can be such a sum of grey income "legalized".

Industry insiders said that this phenomenon in China and foreign PE institutions are not uncommon, financing consultancy fees ranging from 1% to 5%. But for the LP of PE fund, if the investment of 50 million yuan is taken 4% "consultancy fee", only 48 million yuan entered the enterprise, and the remaining 2 million yuan was pocketed by the investment manager. This violates the GP as a fund trustee should be responsible for the moral integrity of LP.

Mixed "with the vote"

In addition to the "Financing Commission" approach, also has the Chinese capital PE investment manager to this newspaper reporter said, if the investor and is the investment enterprise to reach the tacit understanding, the two sides will take the more careful design to carry on the exchange of interests, if by the big shareholder of the investment enterprise helps to hold the shares, even is just an "oral agreement". It's hard to find out and it's impossible to verify.

How to prevent the investment staff from favoritism? With the vote "is a number of PE institutions" high salary honesty "practice. "Heel vote" means that when an investment agency invests in a project, the project leader and his team follow the investment with their own funds. According to a survey by the Research Institute of PE, the project and investment income is also an important component in the floating compensation of PE investment staff.

As for the "heel vote", the policies of different organizations are not the same. Some institutions force investment managers to "follow", in the sense that they are able to bind investment risks and prevent investment managers from packaging the company in order to complete their investment tasks, and that "heel-vote" is also a benefit for investors to motivate them to find good projects.

However, the industry insiders have mixed feelings about the "follow the vote" approach. Research reports by industry organizations show that some organizations think that with the investment mechanism unreasonable, or even inconsistent with the law, in the fund management team and management agencies and investors to form a conflict of interest.

According to media reports, the parent company to the Chen Shuiqing responsible for a number of projects to check, found in Fosun's 11 projects, 5 of which have "shadow company" with the vote.

More difficult to define than "with the vote" is "ahead of the vote", that is, before the entire fund into an investment project, investors advance investment. A foreign PE partner said personal participation in investment (co-investment) is a very common phenomenon in foreign countries, but the standard of compliance is "who advanced, who first out", on behalf of the individual to find the project, or on behalf of the company in the search for projects, if individuals before the company investment, there are moral flaws.

Other people in the industry mentioned the worse behavior--GP company up and down conspiracy to defraud LP, the gray income in the GP internal distribution. According to its introduction, in the past two years PE industry funds flooded, a good project to reduce the background, investors are facing greater pressure. "If you know it's a bad project, but because you take the ' rebate ' from the boss of the enterprise, and push the rotten project inside the fund, this moral hazard is not uncommon," he said. ”

The differentiation of supervision

These familiar with the PE circle of the legal profession told our correspondent, the two-level market of mouse warehouse behavior will be the SFC or even the judiciary investigation and punishment, and PE investment personnel some gray behavior can only accept from the PE fund management company and its LP supervision. "Unless, like Fosun, the company's internal prosecution of PE companies, otherwise the outside world can not know, LP is also in the dark." ”

"I believe Fosun is unwilling to see such a result. "An investor who has a similar background to Fosun's venture told our correspondent," at present, investors do not have better regulatory measures besides their professional ethics and personal integrity. ”

"Private-equity and public-offering funds don't look alike. The investment group is relatively small. Li Jidong, chief analyst at the Group, told our correspondent. This represents a large number of people in the industry's view, due to the small investment behavior, PE market transparency is not enough. At the same time, the domestic LP group immature, the lack of discourse rights also led to investors can "loopholes."

From the second half of last year, the National Development and Reform Commission in the nationwide implementation of PE compulsory filing system, the impact of PE supervision more prominent. This year, the China Investment Association's professional Committee on Equity and Venture Capital has established self-regulatory rules, which stipulate "prohibiting employees from obtaining or accepting any cash rebate, material remuneration and other improper gains from the intended investment enterprise". But this guideline is limited to industry self-discipline.