[Direct answer]In the Beijing area, private equity funds that promise guaranteed principal and returns are usually legally invalid and in violation of regulations. According to the "Guiding Opinions on Regulating Asset Management Business of Financial Institutions" (implemented on April 27, 2018) and the "Regulations on the Supervision and Administration of Private Equity Investment Funds" (implemented on September 1, 2023), asset management businesses are not allowed to promise guaranteed principal and returns, and managers are not allowed to promise investors in any way that their principal will not be damaged or that they will receive a minimum return. Such guarantee clauses violate regulatory mandatory provisions and public order and good customs, and are often deemed invalid in judicial practice. Investors cannot demand strict repayment based on such clauses, and may instead face obstacles in seeking redress due to regulatory violations. For similar issues, please refer to the following materials for reference:Financial capital and cross-border transactions involving foreign countriesColumn.

I. Problem Background and Typical Scenarios

These types of issues often arise in several scenarios: First, the salesperson orally or in writing promises guaranteed returns, but after the net asset value declines, investors demand cash payouts; Second, the manager uses supplementary agreements, repurchase commitments, or related-party guarantees to disguise guarantees; Third, there is insufficient risk disclosure and lack of suitability before investing; Fourth, after the guaranteed returns fail to materialize, investors claim that the entire contract is invalid; Fifth, it involves illegal fundraising under the guise of guaranteed returns. When handling such matters in the Beijing area, we typically first verify the form of the guarantee and regulatory compliance, then determine the validity of the guaranteed return clauses and investors' remedies. For cases involving criminal and civil cross-over issues, reference can be made to relevant legal provisions.Business and contract disputes in enterprisesColumn.

II. Key points of contention

The first focus is on the nature of the guarantee clause—whether the contract is invalid in its entirety or partially invalid. The second focus is on the prohibition of guaranteed returns and the hierarchy of its legal effect in regulatory rules. The third focus is on the identification of disguised guarantees (repurchase, guarantees, and compensation for losses). The fourth focus is on whether the sales suitability and risk disclosure are in place. The fifth focus is on investors' faults and their assumption of risks. The sixth focus is on the boundaries between criminal fraud and civil violations. Specific determinations should be based on the new regulations on asset management, the private placement regulations, and judicial rulings. For related financial disputes, please refer to the relevant materials.Special services and other casesColumn.

III. Professional analysis by Henglue Lawyers

From the practical experience of lawyers handled by our firm, the key to private placement guaranteed return clause cases lies in distinguishing between illegal promises and genuine responsibilities. Regulators explicitly prohibit guaranteed returns, and managers issuing guaranteed returns are not only in violation of regulations, but the relevant clauses are also often deemed invalid, so investors cannot demand rigid repayment based on them. However, this conclusion does not mean that managers can be exempt from liability. If they simultaneously engage in false advertising, lack of suitability assessments, misappropriation of funds, or illegal operations, investors can still claim compensation based on breach of contract or infringement. Lawyers handled by our firm pay attention to obtaining written and audio evidence of guaranteed return clauses, sales double recording, and regular reports during the process. On the one hand, they clarify the boundaries of the invalidity of guaranteed return clauses, and on the other hand, they identify other breach of contract or infringement actions of managers to avoid investors getting trapped in disputes over invalid guaranteed returns and missing out on genuine compensation channels.

IV. Practical suggestions and legal basis

Action proposal: Firstly, be vigilant against any promises of guaranteed returns. Regulators have explicitly prohibited such practices, and you can refer to relevant risk warnings for more information.Special services and other cases1. First, verify the authenticity of the investment plan and the investment contract. 2. Second, preserve evidence of the guaranteed return commitment, including contracts, dual recording, and transfer records. 3. Third, verify the manager's registration and compliance with suitability requirements. 4. Fourth, focus claims for losses on the manager's breach of contract or infringement of rights. 5. Fifth, report suspected illegal fundraising activities promptly. In terms of legal basis, the new asset management regulations and the "Regulations on the Supervision and Administration of Private Equity Investment Funds" prohibit guaranteed returns and income. In judicial practice, guaranteed return clauses are often deemed invalid for violating mandatory regulations or public order and good customs.

5. Henglu Law Firm's Reminder

Risk Warning: Firstly, the promise of guaranteed principal and returns is itself invalid and illegal. Do not expect strict repayment based on this. Secondly, the invalidity of the guaranteed minimum does not exempt the manager from liability. Other breaches of contract and infringements of rights can still be pursued for accountability. Thirdly, disguised guaranteed minimums (repurchases, guarantees) are also subject to regulatory disapproval. Fourthly, fundraising using the bait of guaranteed principal may involve criminal charges. It is recommended to identify risks before investing and to safeguard rights based on the manager's actual faults afterwards.

VI. Frequently Asked Questions

Q1: Are private equity fund's guarantees of principal and returns effective?

It is invalid and illegal. The new regulations on asset management and the Private Equity Fund Management Regulations explicitly prohibit asset management businesses from promising guaranteed returns or guaranteed principal protection. Guaranteed return clauses are often deemed invalid as they violate mandatory regulations or public order and good customs. Investors cannot demand strict repayment based on such clauses.

Q2: If the manager writes a guarantee of principal protection, can he/she sue to demand repayment?

The guarantee clause itself is hard to gain support, but it doesn't mean that the manager is exempt from liability. If there are breaches of contract or infringements such as false disclosure, lack of suitability, and misappropriation of funds, the investor can claim compensation for actual losses rather than relying on the invalid guarantee clause.

Q3: Do implicit guarantees, such as repurchase commitments, count as hidden guarantees?

Yes. Using methods such as supplementary agreements, maturity repurchases, affiliated party guarantees, or making up the difference to disguise guarantees also violates regulatory prohibitions, and may result in the agreements being deemed invalid, as well as potential regulatory penalties.

Q4: The salesperson said it's a guaranteed return, but I need to sign a risk disclosure document. What should I do?

When the risk disclosure document contradicts the guaranteed return commitment, the latter is in violation of regulations and is invalid. It is recommended to keep evidence of the guaranteed return (in writing or audio), and signing the document truthfully does not affect the right to claim against the manager for violations of regulations or fraudulent behavior.

Q5: What should I do if I encounter a guaranteed return fundraising scam?

If any fictitious projects, misappropriation of funds, or Ponzi-like characteristics are discovered, they should be reported to the public security organ in a timely manner, and rights protection should be carried out through parallel criminal compensation and civil claims. The criminal investigation will clarify the whereabouts of the funds, and the civil action will seek compensation for breach of contract or infringement. The two can be carried out in a coordinated manner.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on current laws and regulations and publicly available adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.