For companies, especially listed companies, "corporate governance" is an aspect that is often emphasized. The so-called corporate governance, in a narrow sense, refers to the management norms and management systems of a company / company in protecting shareholders' interests. , The most important of which is the system of shareholders' meeting, board of directors and board of supervisors. The broad sense of corporate governance also includes some ethics and codes of conduct for companies and companies in fulfilling corporate social responsibility, such as "responsibility to customers and consumers," "fair competition," and "protecting the environment." A "good" enterprise should first look at whether its corporate governance is good, not whether it can make a lot of money. If a company's corporate governance is not good, to some extent, it may be that the more money it makes, the more harmful it will be to society.
In the short term, corporate governance will definitely increase the cost of governance for enterprises, but in the long run, companies without corporate governance will certainly not have an everlasting foundation. Moreover, corporate governance can also help companies cope with many emergencies.
Take the typical family business in China as an example. If there is no corporate governance, once the family has a problem, the business will soon collapse. However, you can see that family companies listed on the capital market have more standardized corporate governance. Therefore, even if there is a problem with the family, the enterprise can survive the difficulties and continue to develop healthily. Skyworth and Gome, which are listed in Hong Kong, are two of the most typical examples of corporate governance saving family crises.
Enterprises need corporate governance, what about PE funds as investment institutions? Of course, PE governance is also required.
In China, the corporate governance of enterprises has a history of more than 20 years, and it is also increasingly valued by entrepreneurs. As a new thing in China, PE often wears the aura of "capital", wears a "non-public" coat, and refuses to govern, which will definitely harm the sustainable development of China's PE industry.
PE governance mainly includes two aspects. The first is to ensure that the interests of PE fund investors (that is, LPs) are not infringed by the managers of PE funds (that is, GPs); the second is to protect the interests of invested enterprises. Will be intentionally violated by PE funds or GP.
Let me talk about the conflict between the interests of GP and LP, how to protect LP.
LP's rights and interests are mainly reflected in the fund investment agreement. The most important core principle is: LP hands the money to the GPs to manage the investment and does not participate in decision-making, then the GPs must work wholeheartedly and strictly avoid conflicts of interest . At present, China's PE governance is not doing well. The chaos in the conflict of interest between GP and LP mainly includes the following points:
1. The most prominent phenomenon in the conflict of interest of the GP team is that the same GP team raises and manages multiple funds at the same time. The simple question is, which fund should you invest in when the project comes? Or is the quota allocated among the funds in proportion? Under normal circumstances, the same team is dedicated to managing a fund. Only when the investment of this fund reaches more than 70%, it will start to raise the next fund. Nowadays, there are many domestic funds that claim to be very large, and there are dedicated partners who are responsible for fundraising full-time. There are also some funds, even adopting the franchise chain model, which authorizes the brand and past performance to be used by several teams, and also raises several funds. This model separates the teams, but the performance and brand used for fundraising in the beginning None of this team, its purpose is to flirt with China's immature LPs.
2. There is another common phenomenon of conflicts of interest caused by the lack of concentration of the GP team: the GP team or individual main members have other businesses besides PE investment. Under the upsurge of China's national PE, many interesting GP teams have emerged. For example, there are companies that do business management consulting and also set up a PE fund. The boss is both the chief partner of the consulting business and the chief partner of PE investment. This is a typical erosion of LP interests. Because you are holding the management fee given to you by LP, but at the same time, you are doing something that has nothing to do with the interests of LP but increases your own interests. There are many similar hybrid GPs. Some accountants initiated the establishment of PE funds, and some law firms initiated the establishment of funds. The reason why they can be fooled that LP is willing to give money is to use the current Chinese LP group's lack of understanding of the PE industry, which is contrary to PE governance.
3. Problems with the disclosure of LP information during the fund raising and fund investment process are another common phenomenon where GPs use information asymmetry to damage the interests of LP. The most commonly used methods are false disclosure, exaggerated disclosure, vague disclosure, concealed disclosure and so on. Especially in the process of fund raising, many GPs take advantage of the weakness of most Chinese LPs that do not conduct professional due diligence on GPs, so-called "packaging" the GP company's shareholder background, team experience, and investment performance, thereby achieving deception Or mislead the purpose of LP. At the same time, in the process of fund investment management, a responsible GP must also specifically disclose LPs for any events or decisions that involve LP interests but are not clearly defined in the fund investment agreement, and some even require Obtain the consent of the LP representatives (the fund usually establishes an "LP Investor Committee"). It cannot be concealed to form a potential risk of LP's interest being damaged. As a typical example, there will be a lot of expenses in the process of fund investment. Some of them are clearly defined and are paid from management fees, such as the daily management expenses of GP companies. And some expenses, such as the project intermediary fees paid to the financial consulting company, or some technical consulting fees during the due diligence process, are they paid from the management fee or from the fund to enter the fund's investment What about the cost? If it is not clearly defined in the "Fund Investment Agreement", the GP cannot decide on its own out of the fund's investment costs, but should convene a special meeting of the "LP Investor Committee" to discuss the decision. This is PE governance.
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