The aforesaid two articles *My Views on the Approaches for Lawyers to Represent Investor Suitability Dispute Cases (Part I and Part II)* have conducted a detailed analysis of the institutional system, legal nature and other issues concerning investor suitability obligations for private equity fund investors. This article will make further discussion on how lawyers can effectively represent parties in cases involving disputes over suitability obligations.
The previous article entitled *My Views on the Approaches for Lawyers to Represent Investor Suitability Dispute Cases (Part I)* has conducted a preliminary analysis of the institutional system of investor suitability obligations for private funds and other related issues. This article will further analyze the legal nature of investor suitability obligations and the review criteria for the performance of such obligations.
In October 2024, against the fundamental backdrop of a host of favorable national policies, the A-share market has witnessed an accelerated upward momentum. The returns of a large number of private fund products have accordingly turned from negative to positive. However, data released by Simuwang (Private Equity Ranking Network) in August showed that the private fund index registered a return of -1.76% in August, with a year-to-date return of -7.84%. Most private fund companies have not only suffered a severe shrinkage in their assets under management (AUM), but also borne considerable pressure on investment returns, and private fund products posting losses of over 50% are ubiquitous. Among them, a total of 235 products managed by RMB 10-billion-level private fund managers have public performance disclosures, recording an average return of -0.05% and a median return of -4.86% from January to August this year. 74 products, accounting for 31.49% of the total, have achieved positive returns. These data fully demonstrate that private funds are high-risk products among wealth management products. There are certainly multiple reasons for such high risks, which are not only related to the economic environment and investment attributes, but more importantly arise from factors including the opaque information of private fund products and the uneven qualifications of private fund managers. Therefore, when a private fund product incurs losses, especially huge losses, it remains a pending issue whether investors shall bear the losses on their own under the principle of "buyer beware", or the issuer, distribution agency or service agency of the private fund product (hereinafter collectively referred to as the "seller institution") shall bear liability for failure to fulfill their due obligations. Putting aside the issue of investment capacity of private fund managers, most disputes revolve around whether the seller institution has effectively fulfilled its investor suitability obligation. On this basis, the author holds that under the current circumstances where disputes between investors and seller institutions are on the rise and no unified consensus has been formed in judicial judgments, it is necessary to conduct further discussions on the institutional system, legal nature, review criteria for obligation performance of private fund investor suitability obligations, as well as effective case representation approaches from the perspective of lawyers. This paper will carry out analysis on the aforesaid aspects one by one.
Legal Risks and Compliance Recommendations for Relevant Subjects Involved in Micro-Short Dramas
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