In high-risk investment funds, the risk of PE is less than VC (venture capital), but significantly higher than that of equity funds and other hybrid funds. Of course, its income will double that of ordinary equity funds.
Risks mainly come from the following two points:
1, the form of fundraising is private placement, that is, like a limited number of investors raising funds, the fundraising targets are not public. This means that there is no supervision and no mandatory disclosure of investment information, which can easily lead to information asymmetry between fund managers and investors. Investors have no way of knowing the operation of the fund.
2. Equity investment. PE is a clear equity investment, that is, the equity of unlisted companies. It often participates in the operation of joint-stock companies by sending independent directors and building independent financial accounting systems. The characteristics of unlisted companies are, first of all, small scale, and the company's financial situation and business strategy are not made public. In addition, due to the limited scale and business, unlisted companies are often subject to greater market constraints, and poor business development or outdated industries will lead to the depreciation of the company's equity.
3. Compared with VC (Venture Capital), the risk of PE is appropriately controllable. When PE invests in the equity of unlisted companies, it is generally necessary to set up an exit plan when signing an investment agreement. In other words, what PE actually does is to acquire a company that has developed to a considerable extent, participate in management and financial planning, and then resell the company to make money. Different from pure venture capital.