中国股权投资基金协会

China Association of Pri vate Equity (CAP E)

CHINA ASSOCIATION OF PRIVATE EQUITY GUIDING PRINCIPLES FOR CHINESE PRIVATE EQUITY FUND INDUSTRY (THE “PRINCIPLES”) October 2012 Chapter 1. General Provisions

Private equity funds (“PE Funds”) are enterprises organized to pool money from qualified individuals or entities through non-public offerings. The assets of PE Funds are managed by specialized fund management institutions. They make equity investments mainly in non-public companies, providing management and other value-added services. China Association of Private Equity (“CAPE”) is committed to promoting a healthy industry environment, establishing a sound self-disciplinary system, assisting regulatory authorities in the supervision of the industry, and continuing promoting the stable development of the industry. The legal framework of PE Funds is being established, which covers the areas of formation, operation, investment and exit. Fund managers (“Managers”) and investors (“Investors”) are subject to the Company Law of People’s Republic of China (“PRC”), Partnership Law of PRC, Contract Law of PRC, etc. This legal framework is supplemented by industry self-regulations. These Principles set up self-regulatory guidelines for the private equity fund industry in China. Chapter 2. Relationship with Investors

Investors generally do not participate in the investment decision-making process. Managers should have in place sound internal governance systems and formulate codes of conduct for their directors, management and employees to comply with the fiduciary duties. Investors should possess certain financial strength and the ability to identify and bear risks, meet the qualification requirements provided by relevant laws and regulations, and have obtained all necessary regulatory permissions. Each qualified individual Investor should have over RMB 1,000,000 in net assets (excluding the value of the Investor’s primary residence), and over RMB 200,000 in average annual income during the past two years. Each institutional Investor should comply with the PE Fund practice qualification requirements stipulated by the relevant regulatory authorities (where applicable), and should have an asset volume that matches its proposed investments and a sound corporate governance structure. The numbers of Investors in a PE Fund should comply with the relevant legal restrictions. Each Investor’s liability to a PE Fund is generally limited to its capital commitment. An advisory committee comprised of Investors' representatives should be established to monitor the Manager's performance of duties and provide advisory
地 址 : 中 国 市 西 城 区 金 融 大 街 甲 9 号 金 融 街 中 心 南 楼 902 邮 编 : 100033 Add: Room No.902, South Building of Financial Center, 9A Financial Street, Xicheng District, Beijing 100033 电 话 Tel : 86-10-66017894 / 88087229 传 真 Fax : 86-10-88086229 Email: cape@chinacape.org

and establish internal control mechanisms. industry practice. commercial briberies and conflicts of interests when making investments. Managers should establish reasonable investment decision-making procedures and strictly comply with them when making any investment. Chapter 4. When selecting investments.org . provide professional training. Managers should utilize their professional expertise and resources to add value to the investee companies. growth stage. Managers should also avoid hostile competitions.902. complete regulatory filings. engage legal. financial and tax professionals. Managers should comply with the principles of objectiveness. Fund Management The primary duty of Managers is to manage. set up reasonable compensation.5% of the investment cost of the outstanding projects during the post-investment period).5%-2. etc. etc. Managers should also comply with applicable state and local laws. Subject to law and appropriate risk controls.5%-2. cash flow performance. Managers should recruit professionals with relevant expertise and experience.中国股权投资基金协会 China Association of Pri vate Equity (CAP E) services in respect of the material issues relating to the PE Fund. invest and operate PE Funds. manage each fund fairly and equitably. self-disciplinary rules and professional ethical rules.5% of the total committed capital during the investment period and 1. aiming to achieve a win-win situation for both Investors and the investee companies. Incorporated Managers should comply with the PRC Company Law. 9A Financial Street. while Managers organized as limited partnerships should comply with the PRC Partnership Law. respect Investors’ right to information. (2) carried interest (usually 20% of the profit). are usually composed of 地 址 : 中 国 市 西 城 区 金 融 大 街 甲 9 号 金 融 街 中 心 南 楼 902 邮 编 : 100033 Add: Room No. Managers’ revenue generally includes: (1) management fees (usually between 1. and (3) profits from co-investments and/or other types of income. Discounting cash flow. Managers established pursuant to the Administration Provisions for Foreign Invested Venture Capital Enterprises or Interim Measures for the Administration of Venture Capital Enterprises should comply with the relevant requirements for capitalization and professional experience. Managers should maintain the safety of the fund assets. P/E ratio and replacement cost are available valuation techniques for Managers to evaluate the market value of target investment. which are in charge of making fund investment decisions. the goal of a PE Fund should be to maximize the return for Investors. incentives and key personnel policies. Factors to be considered in PE Funds valuation include the development status of industries and markets. prudence and transparency. Chapter 3. Investment Management Managers should make investments in accordance with the requirements set out in fund documents. Beijing 100033 电 话 Tel : 86-10-66017894 / 88087229 传 真 Fax : 86-10-88086229 Email: cape@chinacape. South Building of Financial Center. Investment Committees. Xicheng District. adopt transparency principles. and accept the monitoring and supervision from authorities and the public.

Chapter 6. risk control and Investment Committees should be incorporated into the risk management processes. Information disclosure should be made in a truthful.org . Beijing 100033 电 话 Tel : 86-10-66017894 / 88087229 传 真 Fax : 86-10-88086229 Email: cape@chinacape. Conflicts of Interest. Related Party Transactions and Information Disclosure Before forming a PE Fund. the Manager should undertake necessary supervision and management. define and disclose related parties transactions according to fund documents and accounting principles. address issues and make fair arrangements consistent with the customary industry practice. stipulate resolution mechanisms in the fund documents. Chapter 7. Compliance and Valuation Managers should establish risk management mechanisms based on the principles of independence. Third Party Service Providers Third party service providers are important participants in the PE Funds industry. complete and timely manner. Managers should segregate the following functions: decision making on significant issues. When exiting the investment. the Manager should maintain a lawful cooperative relationship with the target company. 9A Financial Street. assess valuation methods at the end of each reporting period. prudence and thoroughness to ensure effective implementation of risk controls. and assist in the healthy development of the investee company. the PE Fund. prevent fraud and/or illegal fund raising. set up voting policies regarding related party transactions.902. Managers are responsible for establishing proper investment valuation policies. Risk Management. accurate. Chapter 5. fund custody and investment monitoring. Managers should inform Investors of material potential conflicts of interest. If possible. South Building of Financial Center. Prior to a portfolio investment.中国股权投资基金协会 China Association of Pri vate Equity (CAP E) members appointed by the Managers. Investors. After the investment. and preserve complete valuation records and supporting documents. Managers should properly handle related party transactions among the Manager. the management team. Internal departments such as investment management. Xicheng District. investment management. investee companies and other interested parties. Fund documents should define what constitutes "Related Parties". Third party service providers generally include: (1) custodians: qualified fund custodians that protect Investors’ interest. (2) 地 址 : 中 国 市 西 城 区 金 融 大 街 甲 9 号 金 融 街 中 心 南 楼 902 邮 编 : 100033 Add: Room No. Managers should seek the advice of external legal counsel when faced with significant compliance risks. the Manager should take into account the long-term development of the invested company in addition to maximizing the returns for the PE Fund. Compliance procedures and requirements should be taken into account the daily operation of a PE Fund. Managers may engage professional firms to develop valuations if necessary.

internal risk control consulting. establishing industry records and encouraging public supervision.org . provides members with PE Funds related services and training. public censure and revocation of membership. through which Managers may exchange information. and establish a system of recognition and evaluation of industry participants. South Building of Financial Center.中国股权投资基金协会 China Association of Pri vate Equity (CAP E) private placement agents: institutions with competent experiences and qualifications which are legally established to assist the Managers to raise funds (in the name of the PE Funds) from qualified investors through private placements. educates Investors on how to better understand and manage risks associated with PE Funds. Managers should also strive to comply with professional ethics. confidentiality. fairness. such as audit. and obtain more information on potential investments and opportunities. CAPE will promote the integrity of the industry. financial due diligence. including the principles of fiduciary duties. Development Social Responsibilities. Xicheng District. make joint investments. Beijing 100033 电 话 Tel : 86-10-66017894 / 88087229 传 真 Fax : 86-10-88086229 Email: cape@chinacape. It is a not-for-profit organization voluntarily and jointly promoted by institutions and professionals in the PE Funds industry. publicize significant events. professionalism. protects lawful rights of the members. although investors may engage independent counsel to represent their own interest. CAPE will make efforts to cultivate and reinforce the whole industry's credibility through various means. enhances communication with relevant government authorities. Managers should implement (and continually enhance) a robust internal controls system and be subject to public oversight. 9A Financial Street. professional ethics standards and self-regulation rules. Chapter 8. including enhancing internal compliance. diligence. CAPE seeks to build an effective information sharing network. CAPE has the right to sanction its members through various means such as warning. facilitate information exchange. and valuation. (4) accountants: accounting firms that provide professional services. (3) lawyers: legal professionals who provide legal advice to Managers. CAPE will review the qualifications of applicants for membership and periodically review existing members’ qualifications.902. mediates conflicts and disputes between members. legislators and international counterparts. information disclosure and transparency. CAPE provides guidance to its members on legal and regulatory compliance issues. accounting and tax advisory services. Professional Ethics and Industry PE Funds and Managers should preserve investments value while bearing in mind their social responsibilities. In addition. and compiles integrity records of PE Funds and Managers. prudence. establishes industry standards. Chapter 9. and avoidance of conflicts of interests. Development of Self-Regulatory Organizations CAPE is a self-regulatory organization in the China’s PE Funds industry. 地 址 : 中 国 市 西 城 区 金 融 大 街 甲 9 号 金 融 街 中 心 南 楼 902 邮 编 : 100033 Add: Room No.