Private equity is very much in favor in China as other sources of finance have become difficult to access. This article discusses the use of rachet provisions by private equity funds in China, and the damaging effects this can have on the relations between the private equity fund, its portfolio companies, management and other investors. Frank Marinaro, partner and Chief representative of Loeb & Loeb's Beijing office, suggests that an "operational partner" approach would achieve better results and discusses the benefits and challenges of this alternative Chinese private equity strategy.

This article was published in the November 2011 Volume 2, Issue 10 edition of China Business Law Journal. Permission for article reprint has been granted.

Frank Marinaro is a partner at Loeb & Loeb LLP and Chief Representative of the firm's Beijing office. Mr. Marinaro represents U.S. and international corporations and partnerships, including investment banks, private equity funds and growth companies in mergers and acquisitions, private equity fund formation, portfolio company investments, public and private financings (equity and debt), and general corporate and securities law matters. He can be reached at +86 10 5954 3588 or .