1 million private equity funds drop to 20k! Financial investors lose in the final appeal! Even Sunflower Investment, the fund company, is known for its poor investments!

Source: International Investment Bank Research Report

1. Recently, the Shanghai Financial Court issued a final appellate judgment in a private fund investment dispute under case number (2025) Hu 74 Min Zhong 1838. It dismissed all of investor Shen’s appeal requests and upheld the original decision. Previously, Shen sued the fund manager Shanghai Sunflower Investment Co., Ltd. (hereinafter “Sunflower Investment”) and the distributor Yangtze Securities Co., Ltd. (hereinafter “Yangtze Securities”) after the net asset value of the “Chaoyang Hongyi No. 1 Securities Investment Fund” he invested in dropped sharply, seeking compensation of RMB 1.01 million in investment principal and related expenses. After a court of first instance and an appellate stage, the court did not support his claims.

2. For financial investors, this is a profound lesson: if there isn’t evidence of misguidance by the other party at the time of purchase, you can’t win—no one forces you to buy.

3. However, the private fund also did not win; now the whole world knows the investment is poor. According to publicly disclosed information from the Asset Management Association of China (AMAC), Sunflower Investment was established on April 5, 2007, and completed registration as a private fund manager on December 24, 2014. The institution type is a private securities investment fund manager. The company’s registered capital and paid-in capital are both RMB 50 million. The enterprise is a domestic institution. The legal representative and the member representative are both Hui Guo. The actual controller is Bing Liao and Hui Guo. The company currently has 3 senior executives and 19 employees. As of the information update, among the fund products managed by the institution, 23 are operating, 5 are subject to deferred liquidation, 48 are subject to early liquidation, and only 2 are normal liquidation products.

Recently, the Shanghai Financial Court issued a final appellate judgment in a private fund investment dispute under case number (2025) Hu 74 Min Zhong 1838. It dismissed all of investor Shen’s appeal requests and upheld the original decision. Previously, Shen sued the fund manager Shanghai Sunflower Investment Co., Ltd. (hereinafter “Sunflower Investment”) and the distributor Yangtze Securities Co., Ltd. (hereinafter “Yangtze Securities”) after the net asset value of the “Chaoyang Hongyi No. 1 Securities Investment Fund” he invested in dropped sharply, seeking compensation of RMB 1.01 million in investment principal and related expenses. After a court of first instance and an appellate stage, the court did not support his claims.

The “Chaoyang Hongyi No. 1 Securities Investment Fund” at issue was established on April 27, 2015, and completed filing with the Asset Management Association of China (hereinafter “AMAC”) on April 30 of the same year. The product type is a private securities investment fund, with Sunflower Investment as the manager, and the fund operation status is early liquidation. According to AMAC publicly disclosed information, the fund has no custodian, and the monthly reports, quarterly reports, and annual reports related to information disclosure were basically completed on time. On April 14, 2015, investor Shen subscribed to the fund through Yangtze Securities, investing RMB 1.01 million in principal. He held 1,000,161.6 fund units, with a holding cost of RMB 1.01 per unit.

According to the disclosures, after the fund’s establishment, its net value continued to fluctuate and decline. On March 2, 2020, the fund unit net value was 0.59. From July 1, 2020 to December 31, 2020, the fund unit net value ranged between 0.62 and 0.8. On December 31, 2021, the fund unit net value was 0.4.

As of the stage of trial, the fund unit net value had fallen to 0.02 yuan. The asset amount corresponding to the units Shen held was only RMB 20,003.23, with his principal loss exceeding 98%.

According to AMAC publicly disclosed information, Sunflower Investment was established on April 5, 2007, and completed registration as a private fund manager on December 24, 2014. The institution type is a private securities investment fund manager. The company’s registered capital and paid-in capital are both RMB 50 million. The enterprise is a domestic institution. The legal representative and the member representative are both Hui Guo. The actual controller is Bing Liao and Hui Guo. The company currently has 3 senior executives and 19 employees. As of the information update, among the fund products managed by the institution, 23 are operating, 5 are subject to deferred liquidation, 48 are subject to early liquidation, and only 2 are normal liquidation products.

In 2024, Shen filed a lawsuit with the People’s Court of the Pudong New Area, Shanghai, requesting that Sunflower Investment and Yangtze Securities jointly compensate him for his investment principal of RMB 1.01 million and lawyer’s fees of RMB 10k, and bear the litigation costs. After losing at the court of first instance, Shen appealed to the Shanghai Financial Court. His core claims revolved around three main aspects.

First, in the fundraising stage, Sunflower Investment and Yangtze Securities (the appellants) failed to fulfill their suitability obligations. Shen argued that as a distributor, Yangtze Securities improperly interfered with his risk assessment process, despite the fact that it had never been involved with high-risk private fund investments before, causing his risk assessment results to be categorized as aggressive, which did not match the product’s high risk rating. At the same time, it failed to inform him of core risk information such as “no stop-loss line” and “no custodian,” constituting clear fault.

Second, in the management stage, the two appellees failed to perform the corresponding obligations. Shen believed that as the fund manager, Sunflower Investment did not perform management duties in accordance with the provisions of the fund contract, did not review the investment instructions of the investment adviser Shanghai Hongyi Investment Management Co., Ltd., and allowed the adviser to directly execute fund investments without performing the duty of loyalty and diligence. Meanwhile, both of the two appellees also did not sufficiently fulfill their information disclosure obligations, failed to effectively notify the fund information inquiry channels, and caused serious information asymmetry between both parties.

Third, Shen argued that the above acts of fault by the two appellees had a direct causal relationship with his investment losses. It was precisely because of the insufficient disclosure of information that he was unable to determine the timing for redemption, ultimately resulting in substantial losses, and therefore they should bear liability for compensation.

In response to Shen’s appeal claims, both Sunflower Investment and Yangtze Securities made corresponding defenses. Sunflower Investment argued that it had fully fulfilled its suitability obligations during the fundraising stage. Shen’s signature confirmed that he was aware of the product’s high-risk attributes. When he subscribed, the assets in his securities account exceeded RMB 4.4 million, meeting the standard for qualified investors. It claimed that there was no evidence to support that he was induced into an assessment. The company had performed its management obligations as agreed in the contract, and the investment advice of the investment adviser complied with the contract. There is no causal relationship between the adviser company’s cancellation of its management-managing qualification and the loss at issue. It also stated that it had fulfilled information disclosure obligations through multiple channels. Shen’s losses were due to market risk and his own investment decisions. He already knew the fund’s net value situation in 2020 and redeemed another fund he held at the same time, yet he had consistently not redeemed the fund in dispute; therefore, the consequences should be borne by him.

Yangtze Securities argued that, first, there is no direct fund contract relationship between Yangtze Securities and Shen. The parties bound by the rights and obligations of the fund contract are Shen and Sunflower Investment. Shen’s request for Yangtze Securities to bear compensation liability lacks a basis for standing to sue. Second, as a distributor, it had legally and contractually fulfilled suitability obligations and there were no misleading acts or fault. It had completed qualified investor certification. Shen’s risk assessment result was aggressive, which fit the high-risk product at issue, and it also clearly indicated the product risks through a risk disclosure document, completing the appropriate sales obligations. Third, it had strictly fulfilled the relevant agreements with Sunflower Investment and assisted in fulfilling information disclosure obligations, with no breach. It argued that in 2015 it only had a comprehensive custody service qualification. The qualification to act as a custodian for securities investment funds was approved only in December 2020. The fund contract at issue had already clearly stated that it was only a comprehensive custody service institution, not a statutory custodian, and there were no violations in its comprehensive custody services.

After the People’s Court of the Pudong New Area, Shanghai, heard the case at first instance, it held that the available evidence could not prove that Sunflower Investment and Yangtze Securities had improperly performed their duties. There was a lack of legal causation between Shen’s investment losses and the conduct of the two defendants. Therefore, it ruled to dismiss all of Shen’s claims. After Shen appealed the first-instance judgment, the Shanghai Financial Court held at the appellate stage (second instance) that the parties have the responsibility to provide evidence to prove the litigation claims they assert. If they fail to provide evidence, they shall bear the unfavorable consequences of failing to satisfy the burden of proof.

Regarding each of Shen’s appeal claims, the court made findings one by one: regarding suitability obligations, Shen had signed the relevant risk assessment and risk disclosure documents; his asset situation met the qualified investor standard. He claimed that he was induced into the assessment but did not provide effective evidence; the two appellees had fulfilled their suitability obligations. Regarding the duty of diligence of the manager and the information disclosure obligation, there is no evidence proving that Sunflower Investment had fault in investment management; the two appellees had provided evidence that they fulfilled information disclosure obligations through multiple channels. Regarding causation, the fund in dispute is an open-end fund. During the holding period, Shen could query the net value through multiple channels and redeem. However, after he knew the net value situation, he did not choose to redeem for a long time and should bear the consequences of losses caused by market risk himself.

Ultimately, the Shanghai Financial Court issued a final judgment in early March 2026, dismissing Shen’s appeal, upholding the original decision, and assigning the case acceptance fee of RMB 13,980 for the second instance to Shen. As a typical dispute in the private fund investment field, the case centered on industry core compliance issues such as the seller institution’s suitability obligations, the manager’s duty of diligence and due care, and information disclosure obligations. The result of the final judgment also provides reference for judicial practice for compliant operations in the private fund industry and rational investment by individual investors.

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