At present, government investment projects generally cooperate with fund managers and set up government guidance funds. As the basic unit of economic activities, transactions have expenses or costs. The so-called transaction cost is "the price or cost that the economic system needs to pay".

It is often accompanied by huge risks and uncertainties, which makes investors need to pay the cost of finding, evaluating, verifying and supervising. As a collective investment method, private equity investment fund can share transaction costs among many investors, so that investors can share economies of scale and scope.

Compared with direct investment, investors can get the benefits from the transaction cost sharing mechanism by using private equity investment, which is the fundamental reason for the existence of private equity investment.

As a general partner, once the senior managers of Extended Information sign the investment project agreement, they will actively participate in the management of the enterprise as shareholders, and control and support the development of the investment enterprise.

Therefore, compared with the shareholders of ordinary companies, the shareholders of private equity investment companies can more accurately understand the advantages and potential problems of enterprises, provide a series of management support and consulting services for enterprises, and realize the maximum value-added and benefit sharing of enterprises.

In this way, the institutional arrangement of private equity investment effectively solves the principal-agent problem, which is another reason for the rapid development of private equity investment.

Baidu encyclopedia-private equity