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China Fund News reporter Wu Jun

On August 1 this year, the "Operation Guidelines for Private Securities Investment Funds" (hereinafter referred to as the "Operation Guidelines") will be officially implemented. A private equity institution with a scale of tens of billions of yuan urgently issued an announcement that it will add new terms in the fund contract involving over-the-counter derivatives transactions in accordance with the requirements of the new regulations. In fact, the securities private equity fund industry has recently actively self-examined and rectified around the new regulations, and has developed in a more standardized manner.

10 billion private equity Shiva issued an announcement to change the contract

Involving over-the-counter derivatives transactions, etc.

On the evening of July 16, Hainan Shiva Private Equity Fund, a private equity institution with a market value of tens of billions of yuan, issued an "Announcement on Changes to Its Fund Contracts", involving dozens of private equity securities funds including Shiva Mavericks No. 6.

The announcement stated that in accordance with the requirements of the "Operational Guidelines", relevant terms of the fund contract will be changed.

In accordance with Article 17 of the Operational Guidelines, the following new contents are added starting from August 1, 2024:

First, when the fund adds new over-the-counter option contracts and extends existing contracts, except for only engaging in commodity over-the-counter option transactions, the net assets of the fund shall not be less than RMB 50 million; the total margin and premiums paid to all counterparties for over-the-counter option transactions shall not exceed 25% of the net assets of the fund.

Second, if the fund adds new interest rate swap contracts or extends existing contracts, the net assets of the fund shall not be less than RMB 10 million; if it participates in equity interest rate swaps such as those linked to stocks and stock indices, the margin ratio paid to the counterparty shall not be less than 50% of the nominal principal of the contract.

Third, the nominal principal of the contracts in which this fund participates in the issuance of over-the-counter options or income certificates with knock-in and knock-out structures (such as snowball structured derivatives) by securities companies and other institutions shall not exceed 25% of the fund's net assets.

The new regulations will implement self-examination and rectification in the private equity circle

Controlling leverage in derivatives trading is one of the key points

On August 1 this year, the Operation Guidelines will be officially implemented. The new regulations cover all aspects of private equity fund raising, investment, operation, etc. The reporter learned from the industry that many private equity managers and fund sales institutions have been actively training and learning the new regulations recently, and conducting self-inspections and rectifications in accordance with the requirements of the guidelines, such as modifying contract terms, improving information disclosure, and cleaning up products that do not meet the requirements.

A person in the private equity market with a capital of tens of billions of yuan said, "Recently, colleagues in the company's product department have been extremely busy. Some investment scopes in product contracts have been revised in advance according to the new regulations, and a general meeting of holders has to be held to revise them."

A deputy general manager of a private equity fund also said that according to his understanding, many private equity institutions have begun to revise fund contracts to ensure compliance with the requirements of the guidelines, especially the clauses regarding over-the-counter derivatives transactions and investment ratio restrictions. At the same time, private equity managers are also actively improving information disclosure mechanisms, product structures, internal management and risk control systems.

Among them, the relevant regulations on over-the-counter derivatives transactions have attracted much attention in the industry. The "Operational Guidelines" issued at the end of April this year clearly stated that the nominal principal of private equity funds participating in Snowball structured derivatives contracts shall not exceed 25% of the fund's net assets, and the leverage of DMA business shall not exceed 2 times.

A private equity researcher said that controlling leverage helps managers and investors use leverage prudently, carefully consider the risk-return characteristics of strategies, and develop more sophisticated plans to deal with extreme environments. De-channeling emphasizes that the private equity industry should return to the origin of investment, fulfill its fiduciary responsibilities, and encourage managers to focus on investment management capabilities and improve investor returns.

Editor: Captain

Review: Chen Mo

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