Hello, the risks of individual private equity funds: 1. Legal and policy risks. For domestic private equity funds, the main problem currently is the lack of legal basis and policy support, which puts them on the edge of law and policy.

So far, my country's "Securities Law", "Trust Law" and other legal provisions have not made clear provisions on the meaning of private equity funds, sources of funds, organizational methods, operating models and other issues.

The "Securities Investment Fund Law" was promulgated in October 2003. Due to many controversies, private equity funds have not been able to "rectify their names."

From the outside, many funds seem to have legal status, but if you delve deeper into the business they operate, some of these institutions can easily be associated with "underground fund-raising" and "illegal fund-raising."

Precisely because the legal status of private equity funds is not recognized, their operating activities have always been outside the scope of legal and policy supervision. Once a breach of contract occurs, neither fund managers nor investors receive legal protection, and therefore face great challenges.

legal and policy risks, and the larger the fund size, the higher the legal and policy risks.

2. The organizational structure of moral hazard private equity funds is a typical principal-agent mechanism. The limited partners hand over the funds to the general partners for operation, and only make general provisions on the use of funds, and usually do not interfere with the fund manager's work.

specific operations.

During the operation process, both private equity fund managers and fund holders pursue the maximum expected investment income. The harder the private equity fund manager works, the greater the income. However, in addition to fixed management fees, private equity fund managers can also receive performance commission fees.

When the performance commission fee is greater than the management fee, the private equity fund manager will not adopt an investment strategy that maximizes the interests of both parties, because such a choice does not maximize its own interests, but may abuse its power to pursue more

Therefore, even if private equity funds have superior incentive arrangements, the agent's moral hazard still exists.

3. Operational risk The investment strategy of private equity funds is concealed. Internationally, there are generally no strict restrictions on the information disclosure of private equity funds. This will cause serious information asymmetry and is not conducive to the protection of the interests of fund holders.

In the absence of external restraint mechanisms, the speculative nature of private equity funds pursuing profits may lead them to collude with listed companies to engage in illegal activities such as insider trading and stock price manipulation in order to obtain huge profits.

These operational risks will bring great harm to investors and the market.

The personal ethics of fund managers are difficult to measure. If the manager fails to abide by the contract, it will cause losses to investors.

Liquidity risk of private equity funds Private equity funds generally have a long lock-in period, during which funds are not allowed to be withdrawn, in order to ensure the continuity and stability of fund operations and not have an impact on the investment strategy of the fund manager.

Private equity funds cannot be listed and traded, so the risks cannot be transferred at any time. The holders can only realize the funds after the holding period expires. The fund holders may encounter a debt crisis or even bankruptcy during the closed period of the fund because the funds are difficult to realize.