Private equity investment helps to reduce investors' transaction costs and improve investment efficiency.

According to the contract theory of modern economics, transaction, as the basic unit of economic activities, has expenses or costs. The so-called transaction cost is "the price or cost that the economic system needs to pay". As far as investment activities are concerned, huge risks and uncertainties are often accompanied, which makes investors 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.

2. Private equity investment is conducive to solving the problems of adverse selection and moral hazard caused by information asymmetry.

As a professional investment intermediary, private equity investment fund can effectively solve the problems of adverse selection and moral hazard caused by information asymmetry. First of all, the managers of private equity investment funds are usually composed of industrial and financial elites with considerable professional knowledge and experience in specific industries. They have strong computing ability and cognitive ability in a complex and uncertain business environment, can have a keen insight into the risk probability distribution of investment projects, and have strong information search, processing, processing and analysis capabilities in the preliminary investigation and management of investment projects. As a special outsider, they can minimize information asymmetry and prevent adverse selection. Secondly, the institutional arrangement of private equity investment is also conducive to solving the moral hazard caused by information asymmetry. The most common organizational form of private equity investment fund is limited partnership company, which is usually composed of general partners and limited partners. As a general partner, once the investment project agreement is signed, the senior managers will actively participate in the management of the enterprise as shareholders, and control and support the development of the investment enterprise.