The risk and risk control of private equity funds in investment can generally be analyzed from the following aspects.

1. Project selection risk and its control

Project selection is the basis and premise of project investment. Only by obtaining high-quality projects can the subsequent investment management process be meaningful. Project selection is very important for project investment, which requires that project selection must be strictly controlled, and projects should be screened according to investment industry standards, regional standards and project standards, and projects that do not meet the requirements should be resolutely rejected.

(1) industry selection

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The expected annual return on investment of commercial investors is generally between 20% and 30%, and PE business should choose high-return industries. It is generally believed that high-return industries are monopolistic, resource-based and energy-based projects, and products are scarce and monopolistic. The annual return rate of high-quality projects in these industries is generally above 40%. From the current practice of PE, the industry distribution is diversified. Traditional industries are still favored, but there are also many rules to follow. New consumer goods, new energy and media are becoming potential industries and should be highly concerned.

(2) regional selection

Project investment always occurs in a specific spatial area, so the quality of regional investment environment will inevitably affect the investment effect. A good investment environment can reduce the operating cost of the project, thus increasing the benefit of the enterprise, while a bad investment environment will affect the normal operation of the project, reduce the investment income and even lead to investment failure. The selection factors include the natural geographical environment, economic environment, policy environment, institutional environment and legal environment of the project area.

With the implementation of major national development strategies such as the revitalization of Northeast China, the rise of Central China, Tianjin Binhai New Area and Chengdu-Chongqing Comprehensive Reform Experimental Zone, these areas are facing a golden opportunity. Therefore, private equity funds should not only pay attention to the developed eastern regions, but also aim at new economic growth points with broad development prospects.

(3) stage selection

Generally speaking, private equity funds will match their own advantages and disadvantages according to the characteristics of a company's seed stage, initial stage, growth stage and maturity stage, and focus on investing in enterprises at specific stages:

Private equity investment funds will also invest in various enterprises at the turning point of development, that is, those enterprises that are troubled by funds and try to turn losses into profits. In addition, private equity investment funds are also engaged in MBO leveraged buyouts, that is, the management of enterprises borrows a lot of money or provides shares to buy the companies they manage, which is also a special form of investment.

(4) Project selection

First of all, is there sufficient market capacity for the market potential of the project? Can it continue to grow at a high speed? Is the industry average rate of return high?

Secondly, does the core competitiveness of the project product or service have exclusivity, anti-counterfeiting ability (barrier) and strong profitability in some aspects?

Thirdly, manage the overall quality of the team, including whether the team members are competent for their jobs, integrity management, unity and cooperation.

Finally, the legitimacy, feasibility and scale of the project. That is, whether the business procedures and certificates of the invested enterprise are complete, whether the expected rate of return of PE business can be achieved, and whether the investment quota of the selected project is appropriate. If the project is too big, it will not only exceed the investment quota and affordability of PE, but also contain greater investment risks. If the project investment is too small, it will not only lead to economies of scale, but also distract the project manager's time and energy.

2. Project management risk and its control

(1) Project portfolio investment

If the private equity fund is large, in order to avoid the complete failure of a single project investment, it is generally necessary to put the funds into different projects, thus forming a project portfolio. The practice of Bo Shi Capital shows that building a scientific and reasonable project portfolio can be considered from three aspects: industry portfolio, regional portfolio and investment stage portfolio. If many projects invested by private equity funds belong to different industries, different regions and at different stages of development, the overall risk of private equity funds will be greatly decomposed and reduced.

(2) Staging control

Private equity funds can design a whole set of risk control system for project management, which can be divided into pre-examination and in-process control. Pre-examination is a strict examination of the investment plan and investment agreement submitted by the project implementation team, which is implemented after being approved by the investment Committee.

Process control refers to private equity funds' off-site monitoring of invested enterprises and participation in major decisions. And urge the invested enterprise to report relevant matters in time, grasp the enterprise situation, regularly produce and disclose relevant financial and market information, and keep relevant original vouchers and materials. At the same time, the project implementation team of the private equity fund is responsible for on-site monitoring of the invested enterprises, timely tracking the capital utilization projects, controlling all kinds of risks in the process of capital utilization, finding abnormal situations and participating in emergency response.