| Private placement fund or hedge fund called in the U.S. is the inevitable result of the development of society and economy. Currently hedge fund industry jas been developed rapidly in foreign countries especially in the U.S. As the fast growing of China's economy and rapid expansion of the size of individual's asset, the private placement fund in China has also developed a lot. According to related survey indicated, the private placement fund'asset under management reached 1.7 trillion RMB in China by the end of 2007. However, even at present, private placement fund in China does not have a clear legal status. Due to the lack of legal regulations, the operation of private placement fund is not standardized and transparent, resulting many problems in practice that have serious negative impact to China's capital markets. Legalization and marketization are the inevitable trendsof the development of China's capital market. It is fair to say the rapid growing period of private placement fund has arrived. How to place a reasonable and effective legal regulation on private placement fund becomes particularly urgent and necessary.As a result of the rapid growing of the society and economy, Chinese capital markets already have a lot of private placement fund. We should not shut down all of them or ignore them, but should we guide and help them to develop reasonably by pursuing more in-depth research. Regulatory arrangement is a systematic arrangement that determining the conduct boundaries of how enterprise could participate market activities, playing restraint and incentive role on corporate behavior. From the Government's point of view, the regulatory system is the mean of intervention in economy; from the enterprise's point of view, the regulation constitutes the external environment to run business, is the basic game rule determined by the Government for enterprise to participate in economic activities of the enterprises to participate in economic activities. The government tries to affect a specific industry's market structure and return performance by influencing business Game rules. Because regulation has obvious and significant regulatory feature, it must be stabilized, so that enterprises can have a stable expectations for their investment and business activities.Because of the imperfect market mechanism and the existence of market failures, such as natural monopolies, externalities, etc., the Government should regulate business activities to ensure other economic entities and public interests would not be impaired as long as there have efficient allocation of resources. However, because China lacks regulation on private placement fund, there is no legal basis for private placement funds, resulting the Government can not carry out the necessary supervision. The consequences are that the private placement fund market consists of funds with different level of credibility, and that funds are typically small-scaled. Some funds even make a lot of exaggerations on their advertisement to mislead investors. These phenomenons bring potential trouble to our social and economic life. Therefore, in theory, in-depth study of regulation issues of China's private placement fund, and explore suitable forms for China's private placement fund have important theoretical and practical meanings.Private placement fund refers to the fund that does not have to go through strict registration approval process, and raises money privately from a specific number of qualified institutional investors and high-net worth individuals. All of the investors share the proceeds and risk. According to different forms of organization, private placement funds can be divided into contract-based private placement funds, corporate private placement funds and limited partnership private placement fund; according to the different direction of investment, private placement fund industry can be divided into private industry investment funds, private equity investment funds and private securities investment funds. We usually consider private placement fund as private securities investment fund, which is the main research subjects of this article.Studies suggest that private placement fund is a conception that compare with Public Offering Fund. Its legal essence is still a trust. The existence of private placement funds in China supplements the shortcomings mutual funds in China that have legitimate legal status. It is also an inevitable outcome when China's capital market has developed to a certain stage. Hence private placement funds can not be prohibited without condition. The capital market should follow the laws of the market, respect for the market demand. Suppressing or restraining the spontaneous market demand and financial innovation will only generate more and more illegal underground activity or phenomenon. However, the innovation of financial products should not be laissez-faire. In order to make the development of private placement funds better, the government has to legislate, organize and regulate this industry simultaneously.The regulation of private placement fund is the ratification of its legitimacy and the respect for market selection. The purpose of regulation is to give full play to its positive role and limit the negative impact. This will be conducive to the stable development of capital markets and promote capital market system to get more and more mature. It is hoped that the regulation system of private placement fund which conforms to not only the country reality but also the international customs could be established as soon as possible. Specifically, the Government should adopt legal instructions on the division of the private and public offering funds, establish appropriate threshold and regulatory mechanism, and appoint unified regulatory authorities to determine the corresponding regulation and policy system; accept the form of limited partnership; standardize the mode of the operation of private placement funds, speed up the constitution of related laws for private placement fund to make it has a clear and appropriate legal status, combining strict supervision environment. Making these efforts could not only follow the trend of market development, but also reduce transaction costs, and help better off the operation of private placement funds.The private placement fund has become one of the most important institutional investors in the capital market, generating more and more important impact on the development capital market. Private placement fund business continues to occur insider trading, cheating and so on, so the theoretical and practical communities has been considering how to regulate the private placement fund. Most current research on this topic focus on the management structure and specific regulate structure of private placement fund and so on. This paper systemically analyzes its economical and legal nature, and discusses the theory base of private placement fund regulation. Generally, the author tries to make some explorement on the theory base and necessity of private placement fund regulation, as well as the regulation option of organized form and the operated mode.This paper has been divided into six parts except introduction:Introduction, illustrate the background of topic selection, research object, measure and reason of this paper, as well as summerizes the main content and basic ideas of each part.First part made brief introduction on what is private placement fund. Because there's no legislation as to private placement fund and no clear legal definition can be found in foreign legislation, the definition in this paper is only based on the combine of foreign supervision experience and conditions of China. The author classified the securities investment fund into public placement fund and private placement fund according to the difference in ways and objects of collection. The private placement fund discussed therein is private placement fund of securities investment. Compared with those of public placement fund of securities investment, this paper made analysis on the compared advantages of private placement fund. On the base of it, we consider private placement fund is a special relationship of entrust law, as we make some compared analyze for the different of some relative ideas, such as "manage others'money as entrusted" and "illegal fund-raising". Through the introduction of basic theories of private placement fund regulation, using the information dissymmetry of theory analysis, the author points out the private placement fund is faced with moral risk and interest conflict of "manage others'money as entrusted", and discuss the necessary of analyzing the regulation of private placement fund.In the second part, through compared reviewing of different mode of foreign private placement fund regulation practice, we should learn the foreign experience and analyze its inspiration to the regulation of private placement fund in China.In the third part, based on the review of cause, characteristics, expressive form, the rationality and function of private placement fund, it opens out the main questions and legal risk of the private placement fund without nonstandard development in the situation of lack of clear rules of the private placement fund in the Law of Securities Investment Fund. And it also makes an impersonal judge to the present system of private placement fund.In the fourth part, the author indicates the realistic significance, the guidance idea and basic principle of private placement fund regulation in China. All of it is based on the introduction of national intervention and moderate intervention theory, as well as thinking the difficulties and path choices of carrying out moderate intervention theory.In the fifth part, the author suggests the private placement fund in China should adopt limited partnership organized form. It is based on analyzing the legal relationship of the parts in different organized form and the advantage of this system setting.In the sixth part, the author points out detail suggestions about operation mode of the private placement fund, from market admittance, collect mode, supervision, information exposure system, benefit distribution and so on.Based on absorbing existence research fruit from domestic and foreign studies, this paper explores the private placement fund's organizational form and the feasibility of regulating its operation by analyzing current regulation status, comparing foreign countries'regulation on hedge fund, and considering the selection of organizational form, threshold, fund-raising approach, and the allocation of investment income.First, the private placement fund is a investment capital in Chinese securities market as normal and important. It appears rather late when the capital market develops to some extent. Our country has no uniform attitude to the regulation of private placement fund, and the research content is lack of systematic ness and depth. This paper makes a deep research to the theories and reality of private placement fund regulation. At the same time, it tries to rise up some own ideas to the develop mode of private placement fund in China.Second, in allusion to the development of private placement fund in China, the author analyzes the necessary of private placement fund regulation and the unsolved problems in the limited partnership private placement fund. In the domestic literature it just talks in generalities.Third, by the method of contract analysis, the author researches systemically how to regulate and optimize options of organization form in for the private placement fund.As the lack of my theory attainment, knowledge level and work experience, this paper still has many shortcomings. As follows:First, because the analysis to the Economics of private placement fund is so weak, it's need to further enhance in the extent and depth.Second, it is difficult to collect related data because private placement fund has not been legitimated in China. Therefore the use of analytic tool especially econometric measure is restricted. Some ideas in this paper need empirical verification.
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