Private Equity Fund

A private equity fund is a fund that invests in private equity (equity in unlisted companies). It mainly includes investing in the equity of non-listed companies or the non-publicly traded equity of listed companies. It seeks not the return on equity, but the profits by selling equity through equity transfer paths such as listings, management buyouts, and mergers and acquisitions.

Features

Private equity funds have a narrower range of fundraising targets compared to public funds, but their fundraising targets are institutions or individuals with strong capital and high quality capital composition, which makes their fundraising not necessarily inferior to public funds in terms of quality and quantity. It can be individual investors or institutional investors.

Equity Investment

In addition to pure equity investment, there have been disguised equity investment methods (such as investment in convertible bonds or corporate bonds with warrants), and combination investment mode with equity investment and debt investment as the supplement. These methods are a major advancement of private equity in investment tools and investment methods. Although equity investment is the main investment method of private equity investment funds, its dominant position will not be easily shaken, but the rise of various investment methods and the combined use of various investment tools have also formed an irresistible trend.

High risk

The risk of private equity investment, first of all, stems from its relatively long investment cycle. Therefore, if private equity funds want to make profits, they must make certain efforts, not only to meet the financing needs of enterprises, but also to bring benefits to enterprises, which is destined to be a long-term process. Furthermore, the high cost of private equity investment increases the risk of private equity investment. In addition, the high investment risk of private equity funds is also related to the poor liquidity of equity investment.

Unlike securities investments, which can be bought and sold directly in the secondary market, equity investments have limited exit channels, and the limited number of exit channels are not always open in a particular geographic area or at a particular time. Generally speaking, the profit of PE after successfully exiting an investee company may be 3-5 times, while in China, the figure may be 20~30 times. The high returns induce huge amounts of capital to pour into the PE market continuously.

Participation in management

Generally speaking, private equity funds have a professional fund management team with rich experience in management and market operation, which can help enterprises formulate development strategies to meet market demand and make improvements to their operation and management. However, the private equity investors only aim to participate in the management of the enterprise, but not to control the enterprise.