CVCA AGM 2011 Review Page

中文

With the theme of Raising Standards and Creating Value for Greater Industry Development, the CVCA Annual Members Summit 2011 was successfully held in Sanya, Hainan Province from November 17 to19, 2011.

As one of the most important and recognized summits in China's VC/PE industry, it attracted over 100 guests ranging from VC/PE investors, government officials, and academics to financial service providers. Mr. Yichen ZHANG, CVCA Chairman and CEO of CITIC Capital, Mr. Youxin CHEN, Managing Director of China Securities Co Ltd and Ms. Zhenling XU, Deputy Mayor of Sanya, Hainan delivered the welcome speech. Mr. Kang JIA, Director of Research Institute for Fiscal Science, Ministry of Finance, also delivered the keynote speech at the luncheon.

As a title sponsor for the last three years, this summit was strongly supported by China Securities Co Ltd. The CVCA summit this year was different from previous years in that it was a small but high-level gathering. There was a charity auction at the welcome dinner and all the donations went to Green River, an NGO contributing to Yangtze River protection. The participants gathered to communicate and share best practices in China's VC/PE industry and the summit was a great success.

Chang SUN, Managing Director of Warburg Pincus delivered the welcome speech

Mr. Chang SUN, governor of CVCA, delivered the welcome speech for the Charity Dinner. Mr. SUN congratulated everyone for the opening of the annual membership summit in Sanya and stated he was very glad to get together with industry professionals. Mr. SUN noted that the summit this year was smaller in scale whilst more senior in level, which made it quite distinguished. It has been nine years since the establishment of CVCA. Next year is the 10th anniversary of CVCA and a series of activities will be held in which we look forward to CVCA members and friends'participation and support.

Mr. Yinchen ZHANG, CVCA Chairman, donated the raised money from the charity auction to Mr. Xin YANG, Chairman of Green River.

In the mean time, a charity auction was introduced during the banquet in order to raise money for Green River, a non-profit organization focused on the environmental protection of the Yangtze River, showing CVCA and its members think highly of social responsibility in addition to their business activities. During the charity auction session, which followed a lecture on art investment given by Xinhui LIU from Poly International Auction Company, Ltd., the attendees displayed enthusiasm in bidding. Green River contributes to the environment in upper-basin of rivers, especially the Yangtze River. CVCA hopes that more and more members will be involved in environmental protection and public interest charity activities though this event.

Opening remarks by Mr. Yichen ZHANG, CVCA Chairman / CEO of CITIC Capital.

Mr. Yichen ZHANG, representing CVCA, gave the opening speech. Mr. ZHANG summarized the association's work over the past year. He pointed out that CVCA, as an historic association, has always born the responsibility of supporting the sustainable development of PE/ VC in the greater China region. He expressed his gratitude to all the guests for attending this summit as well as for the sponsors and co-organizer. Finally, he wished the summit a great success.

Welcome speech by Mr. Youxin CHEN, Managing Director, China Securities Co Ltd

Subsequently, Mr. Youxin CHEN, Managing Director of China Securities Co., Ltd, representing the 'Title Sponsor', introduced opinions on the development of VC/PE in the greater China region and some major projects of China Securities Com., Ltd. Additionally, Mr. CHEN recognized CVCA's position as well as its contributions to the VC/PE industry, which is also one of the main reasons for China Securities Company's sponsorship of the summit.

Welcome speech by Ms. Zhenling XU, Deputy Mayor of Sanya, Hainan

Ms. Zhenling XU, the Deputy Mayor of Sanya, made a speech representing the exclusive 'Co-Organizer' of the summit. Ms. XU congratulated CVCA on the opening of the summit and welcomed all the guests. She said this was a valuable opportunity in the investment area, with all the elite executives gathering in one place, which will have a positive effect on the economic development of Sanya. By taking advantage of the CVCA summit, she wished the investment institutions could acknowledge the investment environment in Sanya, making it not only a paradise for tourists but also a haven for investors.

Moderator: John ZHAO　CEO, Hony Capital

Guest Speakers:

Chang SUNManaging Director, Warburg Pincus

Frank TANGCEO, FountainVest Partners

Sing WANGCo-Chairman, TPG Greater China

Head, TPG Growth North Asia

Partner, TPG

Yichen ZHANGCEO of CITIC Capital

The subject of the summit was equity interest investment and governmental supervision. As the moderator of the forum, Mr. ZHAO noted that PE/VC is now at a very special stage as well as facing many challenges. However, the key purpose for PE/VC is to seek investment opportunities in variable environments under an asymmetrical market situation. The guest speakers shared their own experience from different aspects and the features of the PE/VC industry in 2011 could be listed as follows:

There are challenges as well as opportunities in the industry development. According to the financing environment, there are too many obstacles in RMB financing. It is difficult to raise finance from commercial insurance and social insurance, with most of the sources originating from private capital. However, due to macro-control and real estate issues, private companies now have low liquidity, resulting in a harsh investment environment.

On the other hand, the state has encouraged the development of VC/PE while many detailed regulations are still under formulation. Based on different considerations, policies issued by various authorities are always unstable. Policies are still vague in a tough environment, though the investment opportunity remains great.

VC/PE companies need more restraint and supervision from the government. Apart from agreeing on self-discipline, the speakers suggested that mutual discipline agreement should be signed. The contracting parties should abide by the agreement and adjust its behaviors. In addition, mitigating the media attention of rapid growth in wealth of enterprises while increase the coverage of charity activities will help establish a positive image of these enterprises and indicate greater social responsibility in the VC/PE industry.

RMB funds have become mainstream and financing will be the key point moving forward. According to overseas practice, RMB funds will surely become mainstream in China. However, there is some disorder as to the sources of RMB funds, and most investors tend to prefer short-term investment but less capital flows into the social welfare area.

A supervision framework is still under consideration and local regulations conflict with central government declarations. After the amendment of Fund Investment Law, its supervision will extend to VC/ PE investment. The NDRC and CSRC are competing for supervision. Take QFLP as an example, particularly in Beijing, Shanghai, Tianjin and Chongqing, where the policies to push PE industry development are in clear conflict with the central government.

Moderator: Geoffrey CHAN　Partner, Ropes & Gray

Guest speakers:

Vincent HUANGPartner, Pantheon

David Y. LEEExecutive Director, GoldStone Investment Co.

Weijian SHANChairman and CEO, PAG

Weichou SUPartner, StepStone Group

Biao XINGDeputy Director, Equity Capital Department, National Council for Social Security Fund

Ming YEHManaging Director, SVB Capital China

Fumin ZHUOGGV Capital, Managing Partner

GGV Venture Star Equity Investment Partnership, Executive Partner

Forum II was moderated by Mr. Geoffrey CHAN, Partner of Ropes & Gray, and mainly focused on the practical problems the RMB Funds are now facing, such as Due Diligence, RMB FOF investment and the relationship between GP & LP. Guest speakers deeply discussed those issues and shared their sharp ideas.

Due to the recent hot issues about RMB funds, the first issue should be fund financing. The obstacle of RMB financing is whether there are enough LPs, while the obstacles of USD fund raising are based on the requirement of GP. Secondly, there are more and more international organizations involved in RMB funds. With the method of raising RMB with domestic organizations, international organizations have adjusted to a new module due to China market conditions, such as managing government funds with a market model.

The guests suggested that so-called 'Retail Investors' should be strictly prohibited from access to PE so as to maintain the healthy development of the PE industry. In this aspect of fund raising, Private Equity fund raising objectives are not specific or fixed, while all the investors are promised high return, which may lead to the hidden danger of illegal fund raising. There are few PE long-term organizational investors in China, while NSSF are able and also willing to invest RMB Funds. To show their risk resist ability, individual investors should be required to contribute a higher percentage of capital. From the aspect of filing reformation, NDRC requires that the filing should be based on fund raising at a certain percentage, which avoids the risk of false capital contribution.

Victoria ZHONG, Vice President of Gerson Lehrman Group, stated that this summit gathered lots of high lever professionals from top companies in the PE industry. According to the data platform of Gerson Lehrman, the use of RMB funds in China is much more than foreign funds, which shows the rapid development in the PE industry of China.

Mr. Kang JIA, Director of Research Institute for Fiscal Science, Ministry of Finance, delivered the keynote speech at the luncheon. Combined with China GDP & CPI changes and the banking and monetary policy development such as real estate finance, influence of US, Europe, and related industries, Mr. JIA analyzed short-term and long-term government policies, and his expectations in the VC/PE industry as follows:

Firstly, as the first year of the Twelve Five-Year Plan, the predicted GDP development was 8%, while the real development is much better. CPI has fallen and will keep falling. Except for outside affluences, China passed the Financial Crisis and entered a high development period.

Secondly, the main concerns are from the uncertain situation overseas, including both the U.S.A and Eurozone. Though China develops rapidly, it consists of less than 10% in the economic aggregate of the world. We must clarify this uncertainty and help prevent the risk of a world financial meltdown.

Thirdly, the government will keep enforcing prudent fiscal and tightening monetary policies. VAT reform will be expended next year, structural tax reduction will be inclined to SMEs and will be extended to construction, transportation and the others in the tertiary industry such as technology innovation.

Fourthly, financial reform will help realize a diversified financial status under a standard industry framework, attracting more investment to push the enterprises innovation and development. Combined with private capital, local governments should give more financial support to middle and small enterprises for a healthy development.

Moderator: John FADELY　Partner, Weil Gotshal & Manges LLP

　　　　　　　　　　　　　 Head, Weil Asia funds

Guest Speakers:

Edwin CHANHead of Asia, Probitas Partners

Roman SHAWManaging Partner, DT Capital Partners

Ching TANManaging Director & Head of Shanghai office, Siguler Guff

Zhe YINCo-founder & Director, Noah Holdings

Stella ZHUOConsultant, Investment Services, Towers Watson, China

This forum was moderated by Mr. John FADELY, Partner of Weil Gotshal & Manges LLP, and mainly focused on fund raising agents and fund managers, how agents help LPs to improve investment efficiency and select GPs, as well as looking at due diligence and profits allocation.

The guests indicated that the RMB fund-raising market is different from the overseas market. Institutional investors take great a part in the overseas market while most investors are wealthy individuals in the China market. The role of fund agents alters in different stages, and they could adjust the whole LP structure according to the dispersion of individual investors in China. Excessive individual investors make management even harder for GPs. GPs are also concerned the following issues:

Firstly, the information disclosure requirement of the investors. There is a high requirement of compliance and information disclosure on the raised fund from individual investors in the domestic fund raising market.

Secondly, mutual due diligence both for GP and investors. Besides the due diligence of GPs, when signing an exclusivity agreement, the due diligence should be also conducted for the investors.

Thirdly, the importance of GP incentive mechanisms to keep GP team moving and operating steadily.

Moderator: Stephanie HUI　Partner & Managing Director, Merchant Banking Division of Goldman Sachs

Guest Speakers:

Youxin CHENManaging Director, China Securities Co Ltd

JP GANManaging Director, Qiming Venture Partners

Victor GAOManaging Director, CDIB Capital

Richard GUOPartner, Fangda Partners

Paul MAPartner, KPMG China

Michael YANGHead of Asia, Global Corporate Client Group of New York Stock Exchange

Forum IV was moderated by Ms. Stephanie HUI, Partner & Managing Director, Merchant Banking Division of Goldman Sachs, and mainly focused on RMB structures, legal, tax and other practical problems in fund management.

Due to common practice, Enterprise IPOs will consider the acceptance both of market and investors and the expectation of PE/VC investors behind the IPO enterprise. The post-IPO performance is the key issue the investors are concerned about.

In the securities market, the money raised this year has slumped dramatically compare to last year, and the P/E ratio has also dropped accordingly. After the requirement of the issuance examination has been brought down, the applications grew rapidly while the failed cases also greatly increased.

Tax of overseas funds will increase accordingly, and the fund structures will become more complicated while management costs will also increase. On the other hand, the domestic RMB structure will simplify and tax will also decrease.

After RMB funds become market oriented, LPA clauses in USD funds and RMB funds tend to more and more alike. Legal and commercial clauses are diverse, and agency and management fees vary accordingly.

CVCA 2011 Annual General Meeting was held successfully. Ms. Frances HUANG, CVCA President, hosted the general meeting. CVCA Chairman, Mr. Yichen ZHANG, reviewed the work of CVCA in the past year and stated that CVCA will continue to contribute to the VC/PE industry. Mr. C.K TSANG, CVCA Treasurer and Partner of TPG, reported on CVCA's financial status for the past year to members.

During the annual governor election, Mr. Maurice HU, CVCA legal counsel and Partner of Orrick, Herrington & Sutcliffe, announced that all other governors will continue to serve on the board, except for Mr. Jing Huang. CVCA is grateful for Mr. Jing HUANG's contribution to CVCA during his term as a board member.

After the CVCA Summit, Mr. Sixiang JIANG, vice-governor of Hainan Province and Municipal Party Secretary of Sanya organized the conference with the theme of “Strategy and Prospects for Building Sanya into an International Offshore Center and Wealth Management Hub with Support of Equity Investments”. The leaders of Hainan Development Reform Commission, Finance Service Office and senior professionals of CVCA members led by Mr. Yinchen ZHANG, the Chairman of CVCA, were present at the conference.

After the introduction of Sanya's economic status and blueprint by Mr. Sixian JIANG, Mr. Yichen ZHANG, CVCA Chairman and CEO of Citic Capital, Mr. Antony LEUNG, Senior Managing Director of the Blackstone Group, Chairman of Blackstone Greater China, Mr. Sing WANG, Co-Chairman of TPG Greater China, Head of TPG Growth North Asia, TPG Partner, Mr. Victor GAO, Managing Director of CBID Capital, Mr. Chang SUN, Managing Director of Warburg Pincus, Mr. Fumin ZHUO, Partner of GGV Capital, Ms. Stephanie HUI, Partner and Managing Director of Merchant Banking Division of Goldman Sachs, all eagerly gave suggestions to improve the investment environment and financial system. The conference was successfully concluded with a hot discussion on this area.