Overview of private equity fund Private equity fund refers to an investment fund that is privately raised and set up for a few investors. Therefore, it is also called a fund raised from a specific target or an "underground fund". There are basically two ways: one is the contractual collective investment fund based on signing the entrusted investment contract, and the other is the establishment of shares based on * * * *. [Editor] The development and characteristics of private equity funds in the world. Private equity funds are developing rapidly in the world. The main form of private equity fund is hedge fund, which is an investment tool designed for investors seeking maximum return. Hedge funds are different from mutual funds. The latter is generally a public offering, which requires public portfolio and public supervision. Hedge funds are not regulated by the government because of their private investment nature, but it does not mean that they are not regulated at all. Generally speaking, there are external supervision of creditors (loan banks) and internal supervision of partnership investors. Up to now, there are more than 4,000 kinds of hedge funds in the world, with a total scale of more than 400 billion US dollars. Although the quantity and scale are not as good as * * *, the development momentum is strong. Well-known funds such as Buffett's fund, Soros Quantum Fund and long-term capital company LTCM are all hedge funds. Although hedge funds were in a difficult situation in the previous two years, their profitability has rebounded since 2000. The rapid development of private equity funds around the world proves its tenacious vitality. This is related to the advantages of private funds over public funds. Compared with Public Offering of Fund, private equity funds have the following characteristics: 1. Since private equity funds are raised by a few specific targets, their investment objectives may be more targeted and can better meet the special investment requirements of customers. 2. The government's supervision of private equity funds is relatively loose, so the investment mode of private equity funds is more flexible. 3. Private equity funds don't have to disclose detailed investment portfolios regularly like Public Offering of Fund, so their investments are more hidden, less easily tracked by the market, and the return on investment may be higher. In addition, the internal governance structure of private equity funds is also very distinctive. Private equity funds generally implement the partner system, which can effectively reduce the principal-agent risk under the separation of ownership and management rights. Partnership private equity fund consists of limited partners and general partners. Limited partners (clients) are real investors, while general partners are composed of investment experts, who mainly invest in human capital and a small amount of cash. Income distribution is limited, and partners get a bigger part. If the investment fails, the general partner's contribution will be lost first. This forms the following situation. On the one hand, the generous distribution of investment income has become a great motivation to motivate general partners; On the other hand, for general partners, the first responsibility of loss can restrain their moral hazard. This greatly reduces the principal-agent risk. [Editor] Compared with the advantages and disadvantages of Public Offering of Fund and Public Offering of Fund, such as closed-end funds and open-end funds, private equity funds have very distinctive characteristics, which make them have incomparable advantages in Public Offering of Fund. First, private equity funds raise funds in a private way. In the United States, children's funds and pension funds in Public Offering of Fund generally attract customers by advertising through public media. According to relevant regulations, private equity funds are not allowed to use any media to advertise, and their participants mainly join through so-called "reliable investment information" or direct knowledge of fund managers. Secondly, in terms of fundraising targets, private equity funds are only targeted at a few specific investors, and the circle is small but not low. For example, in the United States, hedge funds have very strict regulations on participants: if they participate in the name of individuals, their annual income in the last two years will be at least $200,000; If you participate in the name of the family, the family's income in the past two years is at least 300,000 US dollars; If you participate in the name of an institution, its net assets will be at least $6,543,800+0,000, and the number of participants will be limited accordingly. Therefore, the investment goal of private equity funds is very strong, which is more like an investment service product tailored for middle-class investors. Third, unlike Public Offering of Fund's strict information disclosure requirements, the requirements of private equity funds in this respect are much lower, and the government supervision is relatively loose, so the investment of private equity funds is more hidden, the operation is more flexible, and the chances of obtaining high returns are correspondingly greater. In addition, a notable feature of private equity funds is that fund sponsors and managers must invest their own funds into fund management companies, and the success of fund operation is closely related to their own interests. Judging from the current international practice, fund managers generally hold 3%-5% of the shares of the fund. In case of loss, the shares owned by the manager will be used to pay the participants first. Therefore, the promoters, managers and funds of private equity funds are as close as lips and teeth, and honor and disgrace are integrated with the interests of * * * *, which also solves the inherent weakness of managers' interests and incentive mechanism in Public Offering of Fund to some extent. It is precisely because of the above characteristics and advantages that private equity funds have developed rapidly and occupied a very important position in the international financial market. At the same time, it has also trained investment masters like Soros and Buffett and international financial "snipers". In China, although there is no public and legal private equity investment fund, there have been many non-bank financial institutions or individuals engaged in collective securities investment business. To some extent, they already have the characteristics and attributes that private equity funds should have. According to reports, the total amount of existing private equity funds in China is at least 200 billion yuan, most of which have been regulated by the relevant market regulations and management regulations of the United States, and a large number of industry elites and economists have gathered. But the fly in the ointment is that they can only live in the underground world without sunshine in obscurity. With the approach of China's entry into WTO, the opening of China's fund market is not far off. According to relevant agreements, foreign capital can enter the China market within five years, and the fierce market competition in the future can be imagined. Therefore, many people of insight call for giving private equity funds a clear legal status as soon as possible, so that they can enter the sunshine zone as soon as possible. This is not only conducive to standardizing the management and operation of private equity funds, but also conducive to creating a fair, just and open market competition environment, reducing transaction costs, promoting financial innovation, constantly creating and enriching financial products and investment channels in the securities market, and meeting the increasingly diversified investment needs of investors. [Editor] The difference between private equity funds and Public Offering of Fund is mainly reflected in the following aspects: 1. The biggest difference between private equity funds and Public Offering of Fund is that the investors are different. Private equity funds face specific investors and meet the needs of specific fund investment groups. Because there are special customers who have special expectations for the goals of the fund, it is also a market strategy for fund sponsors to launch customized fund products for some target customers in order to fill the gaps in the market. It is this characteristic of private equity fund that makes the product contract of private equity fund have the nature of agreement, that is, investors can negotiate with the fund sponsors to determine the investment direction and objectives of the fund, rather than being unilaterally decided by the fund sponsors. In other words, private equity funds pay more attention to the needs of specific investors. 2. Differences between laws and regulations Generally speaking, Public Offering of Fund is open to ordinary investors. In order to protect the interests of many small and medium-sized investors, national laws and regulations have stricter regulatory measures and more detailed information disclosure requirements for public offerings (whether stocks or funds). However, private equity funds can be the result of individual consultations, because investors are only a certain group, and the requirements of general laws and regulations may not be as strict and detailed as those in Public Offering of Fund. For example, the restrictions on the investment in a single stock have been relaxed (the investment limit for new funds in Public Offering of Fund is 65,438+00% now), and an investor can hold more than a certain proportion of a fund (Public Offering of Fund now has the requirement of not exceeding 3-65,438+00% according to different investors), so the minimum size of private equity funds is even more. However, if the government thinks that the supervision of private equity funds should also be strengthened, it can also put forward the same regulatory requirements for private equity funds as Public Offering of Fund. Then, before the government formulates corresponding laws and regulations, the discussion on the difference between Public Offering of Fund and private equity funds can only be limited to the way of raising funds. Therefore, in addition to the way of raising funds, other distinguishing features of public offering and private offering, as well as their respective connotations, depend on the differences and degrees of government supervision means. As far as the essence of private equity funds is concerned, private equity funds can only target a few investors. The fund has the significance of gathering many investments. So in reality, the definition of private equity fund is stipulated by the laws and regulations formulated by the government according to the actual situation of the country. In a word, the obvious difference between private equity funds and Public Offering of Fund lies in the way of raising funds, that is, issuing the prospectus to all investors publicly or issuing the letter of intent for investment to specific investors. [Editor] The development course of private equity funds in China is 1993-1995: in the embryonic stage, securities companies and major customers gradually formed an irregular trust relationship; 1996-1998: In the formation stage, listed companies entrusted idle funds to underwriters for investment, and many consulting companies became private equity fund traders; 1999 -2000: in the blind development stage, due to the popularity of investment management companies, a large number of elites in the securities industry jumped ship and relied on familiar professional knowledge and excellent marketing. After 200 1: in the stage of gradual standardization and adjustment, the operation strategy changes from capital preservation business to centralized investment strategy, and the operation mode changes from joint venture with Zhuang to combination of capital promotion and value discovery. [Editor's Note] According to industry estimates, the total amount of underground private equity funds in China far exceeds that of closed-end funds listed in Shenzhen and Shanghai. Its total amount is conservatively estimated at around 200 billion yuan, and the higher estimate is 500 billion yuan. According to this estimate, considering that these private equity funds mainly invest in the securities market, we can think that although the share capital and net value of securities investment funds listed in Shenzhen and Shanghai account for less than 4% of the circulating market value, with the participation of private equity funds, this ratio may catch up with or even exceed the level of developed countries such as the United States (18% in 1999). Therefore, private equity funds are strong, and the securities regulatory authorities need to formulate relevant laws and regulations as soon as possible, and gradually standardize and guide them on the right development path. Although the development of private equity market in China is spontaneous, underground and not chaotic, it is quite creditworthy and orderly, and so far there have been almost no major disputes. It is precisely because of the marketization of private equity funds that many problems that are difficult to solve in Public Offering of Fund have even been solved here. The first is the incentive compatibility between fund holders and managers. According to the provisions of the Securities Law, the daily remuneration of fund managers who raise funds publicly is 1.5% multiplied by 1/365, which is quite high. This directly leads some fund managers to hope to increase their net assets in a short period of time to benefit, but when the dividend comes at the end of the year, they quickly reduce their net assets, which is easy to cause illegal operations. On the contrary, most private equity funds only give managers a fixed management fee to maintain their expenses (even no management fee), and their income is extracted from the year-end dividends in proportion, which makes the interests of fund holders and managers consistent. Secondly, the risk-taking mechanism of fund managers. Fund managers of international private equity funds generally hold 3% to 5% of the shares of the fund. Once a loss occurs, this part will be used to pay in advance to ensure that the manager is linked to the interests of the fund. At present, most private equity funds in China also adopt this method, but the difference is that the ratio is as high as 10% to 30%, so when losses occur, the fund manager suffers the most. The reason why the proportion is so high is that China's credit system has not been fully established, and at the same time, because its operation is underground and risky, it is difficult to attract capital to join. The third is the active selection mechanism of fund managers to fund holders. It is said that a private equity fund with a scale of 7 billion yuan put forward "eight don 'ts" to capital holders when recruiting: the funds should not be less, generally more than 30 million per person; Do not ask for a fixed return; Don't spend a short time. The fourth is the complete marketization of financing and investment methods, many of which may touch on financial management regulations. In private equity funds, some illegal but reasonable practices are very popular at present. Fifth, private equity funds began to pay attention to the governance mechanism.