After a number of excellent VC2.0 institutions emerged in the market around 2015, in recent years, some teams have successively established new fund brands and management teams from spinoff in the original RMB fund management institutions or other fields (such as securities traders, industrial capital, listed companies, family offices, etc.); At the same time, affected by the complex external environment at home and abroad, some US dollar funds have also begun to accelerate the establishment of their first or new RMB fund products. According to our market observation, the demands of RMB fund investors have not only become more complex, but also the inconsistent factors of interests among investors have gradually increased. With the emergence of various complex compliance requirements at the regulatory level, the formulation of relevant fund-raising strategies, the construction of legal framework, the establishment and the design of investment and operation mechanism of RMB fund are becoming more and more important during the preparation of the establishment. We will further remind the management team of the factors that need to be considered when initiating the establishment of RMB fund 1 from the perspective of fund lawyers in combination with the recently issued regulatory requirements such as the key points of fund filing issued by the Fund Industry Association (hereinafter referred to as the "association"), and strive to reserve sufficient space for improving the flexibility of fund investment and operation, meeting and balancing the demands between managers and investors, as well as different investors.

1、 Need a complex fund structure?

In the preparation of the fund, especially in the preparation process of the establishment of the fund initiated by market-oriented institutions, in addition to the structural design actively made by the manager from the perspective of institutional operation management, tax planning, team incentives and constraints, various demands and changes of external investors have further promoted the iterative upgrading of all aspects and stages of the organization, personnel, pre investment and post investment management within the management institution, This also includes the architecture design of fund products. In fund practice, managers may need to consider the construction of parallel funds, feeder funds, master and sub funds, umbrella funds and other structures due to investors' domestic and foreign investment composition, investors' types (such as wealth side funds such as high net worth individuals), regulatory or policy requirements of specific types of investors (including fund size, filing type, landing requirements, etc.). In the process of setting up such a complex fund, it is also necessary to consider the arrangements of various future operation mechanisms of the fund, so as to minimize potential disputes with investors in the future, or bring unnecessary burdens to the manager himself.

For example, some market-oriented investment institutions adopt the structure of domestic + foreign parallel funds to deal with the impact of foreign investment access restrictions on some investment projects at the trading end. However, what criteria are used to define which fund entity is more suitable for investors with part of foreign investment (to avoid missing potential investment opportunities), and how to optimize the changes in the delivery rhythm and scale of multiple parallel fund entities (such as the successive establishment, the respective changes in the size of funds during the subsequent raising period, the capital reduction of fund investors in extreme cases, etc.) The impact of factors such as changes in foreign investment access requirements (including becoming stricter or looser) before and after the implementation of investment by the fund on the determination and adjustment of the proportion of joint investment (including retroactive adjustment from the beginning, adjustment after occurrence, etc.), and how to deal with the unused capital contribution caused by the exclusion of foreign investment projects (return to investors, adjust the proportion of investment cost sharing or take other measures) How to make corresponding restrictions on the foreign investment composition of its upper level investors (including the restrictions for the whole period of investment in the fund) in advance before some potential investors of the Fund (represented by the wealth end investors) initiate the establishment of products themselves has brought certain challenges to the managers. This requires not only the full cooperation of the internal fund-raising, legal, financial and operation teams, but also the consideration of how to deal with these problems in the early preparatory stage before the establishment of fund products.

2、 Is there anything you need to pay attention to when considering the scale of the first close of the fund?

Under normal circumstances, the increased subscribed capital contribution of the subsequent raising of the fund shall not exceed 3 times the scale of the first customs, that is, the final customs scale shall be up to 4 times the scale of the first customs. Therefore, when communicating and coordinating the progress and order of delivery with potential investors, these effects should be fully considered. In addition, some special impacts may have a special impact on the pace of fund delivery, such as:

1. Funds that invest in a single target fund that does not exceed 50% of the fund scale (represented by a single or specific project fund; if it is a feeder fund, "penetration" determines whether the main fund touches the above investment concentration ratio), contractual funds, and non custodial funds: only one-time delivery is allowed;

2. Securities companies are funds: in principle, one-time delivery, and subsequent raising can be carried out when specific conditions are met (including operation for more than 1 year and good performance, no default risk, consent of all investors, and the interval between each raising is not less than 1 year);

3. Corporate Fund: if the fund is a state-owned holding and actually controlled company, the company's capital increase (fund raising) may involve the performance of state-owned assets procedures (depending on the specific situation, it may include audit, evaluation and filing, entry transaction, etc.);

4. Influence of investor factors: for example, if venture capital investors invest in private equity funds, the fund size shall not be less than 500million yuan; For another example, some investors (represented by the government guided Fund) have corresponding restrictions on their maximum contribution proportion in the fund. In order to meet these requirements, it is necessary to consider that these investors invest in the fund by means of fractional delivery, or subscribe at one time and reduce their subscribed capital by means of transferring equity at the end of the Fund (if they do not meet the requirements of the limitation of contribution proportion at the end of the fund); In addition, when the fund involves a complex structure, it is also necessary to consider whether these proportion restrictions can be applied to all entities of the whole phase I Fund (including the sum of the subscribed capital of all parallel funds) or only to a single entity invested by investors.

3、 Is there anything you need to pay attention to when considering the term of the fund?

The setting of the fund term is essentially a business arrangement made by the management team based on the fund's own investment strategy, investment stage, investment and exit rhythm prediction. For example, the term of early funds and fof may be relatively long, while the term of follow-up strategy funds, funds with pre IPO investment and pipe investment as the main investment methods may be relatively short, but they all need to be determined according to the specific situation. Recently, due to the fact that the term of the fund itself is longer than the term of the fund investor, which is recognized as a "term mismatch" and requires the manager to rectify in the fund filing cases publicized by the association, it has attracted widespread attention and heated discussion in the market. We understand that not all cases where the term of upper level funds is shorter than that of lower level funds belong to the fund pool business with the characteristics of "term mismatch". Under the condition that the fund investors themselves have high risk identification ability and bearing ability, due to the autonomy of the fund investors, the fund contract elements including the term should be tolerated. According to our current understanding of the audit criteria for fund filing, if the term of the upper fund is shorter than that of the lower fund for less than half a year, or if it exceeds half a year but meets the following conditions, it will not constitute a substantive obstacle for the fund to file with the association:

1. All investors of the upper level fund are aware of the term mismatch and are willing to bear liquidity risk;

2. The upper level fund is a fof with standardized operation;

3. The upper funds are social security funds, charitable funds and enterprise annuities;

4. The lower level fund undertakes the major mission and policy objectives of national or regional regional development, and the lower level fund manager can provide supporting materials.

Therefore, the upper fund managers should pay close attention to the design of the terms of the fund contract and the lower fund managers should pay close attention to the fund fundraising, so as not to affect the progress of the fund filing and increase the communication and coordination with the fund investors.

4、 Need a separate GP?

According to our market observation, in recent years, the newly established partnership RMB funds have increasingly adopted the mode of setting up GP separately from the main body of the manager (that is, the separation of the manager and the GP), which may include the following factors:

1. Tax planning: the distribution (including carry) obtained by GP can be interpreted as investment income, rather than the consideration for providing investment management services. There is a certain space to be interpreted as not belonging to the taxable category of value-added tax;

2. Risk isolation: GP only bears unlimited joint and several liabilities for the debts of the fund it contributes, and the manager's management fees and other income will not be used to bear such liabilities;

3. Meet LP's demands: if LP has corresponding demands for GP's registration place or participating GP, the manager can set up GP separately for each fund.

If a GP is set up separately, the manager should also pay special attention to the following points:

1. GP and its final investors after penetration (if penetration is required) need to meet the requirements of qualified investors. The initial paid in capital contribution of GP to the fund is not less than 1million, and the manager needs to make fund planning in advance;

2. The manager should have an association with GP. If the GP is held by an individual, it can only be the legal representative of the manager or the executive partner (appointed representative).

5、 Can the fund engage in debt investment?

For funds engaged in creditor's rights business, the core of current supervision is to prevent "pseudo private placement" from becoming a channel to provide financing, which leads to the risk of "shadow banking" in the field of private placement funds, but for the way of matching equity + creditor's rights in fund investment practice, supervision still retains a certain space.

For pure debt investment (such as bridge investment), at present, it is only for the purpose of equity investment to provide loans for the invested enterprise within one year, and the loan balance does not exceed 20% of the paid in amount of the fund. In fund practice, based on the investment mode, the reorganization of the invested enterprise and other factors, the object of loan provided by the fund in project investment may sometimes be the shareholders or other related parties of the invested enterprise. Without violating the core meaning of supervision, we also suggest that the relevant departments and custodian institutions can grasp the subject scope of "invested enterprise" from the perspective of substance over form.

At present, there are no strict restrictions on the term and proportion of convertible bonds that invest in unlisted enterprises. Special attention will be paid to those whose scale of convertible bonds exceeds 20% of the fund scale. Considering that the blind pool fund cannot determine and cover the complex situations that may be encountered in the future investment at the time of filing, the manager can issue an explanation to the association on the business scenario of such convertible bonds and the agreements under general circumstances (including the term, interest rate, conversion conditions, etc.), but it should be noted that, The fund cannot engage in the creditor's rights business prohibited by the supervision in disguised form through such convertible bonds (such as the term of share conversion is too long, the interest rate is too high, and the conditions for share conversion cannot be met in fact). In fund practice, for vie red chip projects, such as the invested enterprise providing convertible bonds to the invested enterprise to perform the ODI approval process and other structural restructuring, and the vie agreement signed by the fund contains relevant equity pledge arrangements, special attention should be paid to the regulatory requirements on debt investment and the fund's engagement in guarantee business.

6、 How to choose the type of fund filing (equity or venture capital)?

The choice of the type of filing of the fund in the association has not attracted the attention of the manager for a long time. However, with the complex changes in the regulatory environment, this important factor needs to be considered at the preparatory stage of fund establishment. The main points that may be affected include:

1. Scope of investment

Equity funds can invest in unlisted enterprises, stock investments of initial public enterprises (only limited to strategic placement and Hong Kong stock cornerstone investment), pipe investments (including issuing shares to specific objects (fixed increase), block trading, agreement transfer), placement of listed companies, convertible bonds of listed companies, negotiable bonds, etc; Venture capital funds can only invest in unlisted enterprises (and do not involve infrastructure, real estate and other negative list fields) and placement of listed companies.

It should be noted that because the investment scope of venture capital funds is limited and needs to penetrate to the underlying target for judgment, if the potential investors include venture capital funds during fund-raising, in order to avoid the future investment scope of the fund being limited, we can consider designing mechanisms such as investment exclusion (that is, excluding venture capital fund investors from participating in the investment of such projects) to meet the corresponding requirements.

2. Potential investors

For example, when raising insurance funds, the choice of fund filing type should be considered in combination with the Aum of the manager, the situation of funds under management, the situation of project exit, the limitation of investors' contribution ratio, the limitation of investment concentration, etc.

3. Policies enjoyed by venture capital funds

(1) Multi level nesting exemption

For the nesting between private equity funds due to investment strategies (such as fof), fund-raising or investment architecture design, the supervision does not strictly limit the nesting level; However, if the fund manager or fund contributor is a financial institution (such as asset management plans managed by securities companies, fund management companies or their subsidiaries, securities firm funds, etc.), the restrictions on multi-level nesting in the new asset management regulations will be strictly applicable. If a venture capital fund meets certain conditions (including a period of not less than 7 years, an unstructured fund in principle, and no debt raising in principle), it can exempt itself from one layer of nesting.

(2) Taxes

At present, the Ministry of finance, the State Administration of Taxation and other relevant departments have issued a number of special tax policies for venture capital funds, 2 intended to support the domestic venture capital industry and the development of the real economy through tax supporting policies. Managers need to pay special attention to the preconditions for the enjoyment of such tax policies (including the requirements for venture capital funds, invested enterprises, etc.).

In particular, it should be noted that the applicable tax rate of equity transfer income obtained by natural person partners of the partnership in 2018 has caused fierce disputes in the industry. With the convening of the executive meeting of the State Council and the implementation of CS [2019] No. 8 document, under the current domestic tax mode (collection and management mode) applicable to personal income tax, Venture capital fund 3 can choose one of two ways: accounting by a single investment fund or accounting by the overall annual income of the venture capital enterprise, and calculate the personal income tax payable on the income of its individual partners from the venture capital fund. However, instead of choosing to calculate according to "single investment fund", it must correspond to a lower tax burden. Managers should pay attention to the limitations that losses cannot be carried forward and fund expenses (including management fees, carrys, etc.) cannot be deducted under such methods, so as to make a more suitable choice for themselves.

(3) Special locking arrangements

If the invested enterprise (issuer) does not have or is difficult to identify the actual controller, when the venture capital fund itself and the invested enterprise meet specific conditions at the time of its initial investment (including the venture capital fund manager has joined the association, the invested enterprise has been established for less than 60 months and meets the 522 requirements, and the fund investment has reached 36 months, etc.), 4 if the venture capital fund is not the largest shareholder of the issuer but is listed in the range of shareholders holding more than 51% of the total shares, It only needs to be locked for 1 year instead of 36 months.

It should be noted that with the introduction of the new regulation 5 on reduction of holdings revised by the CSRC in 2020, equity funds and venture capital funds can enjoy the "reverse linkage" policy to accelerate the reduction of Holdings under the condition that the invested enterprises meet certain conditions (the invested enterprises are less than 60 months old when the fund first invests, the invested enterprises meet the 522 requirements, and the invested enterprises have obtained the high-tech enterprise certificate at the time of issuance and acceptance of materials, which can meet one of the three conditions), However, entities that are not registered as funds cannot enjoy it. Considering that in fund practice, investment holding instruments (SPVs) may be established for the purpose of collecting funds from multiple fund entities (represented by parallel funds) and providing investors with investment follow-up opportunities, and these investment holding instruments may not be able to be filed because they do not meet the characteristics of the fund, we also expect the regulatory authorities to relax the scope of the subject that enjoys the acceleration policy to a certain extent in the future.