Private equity fund, as its name implies, refers to the fund engaged in private equity investment, and private equity investment (referred to as "PE") refers to raising private equity capital in a non-public way, investing in unlisted enterprises, and actively participating in the operation and transformation of investment targets as strategic investors, and realizing income through listing, mergers and acquisitions or management buyback.
Internationally, private equity investment funds can be divided into three types according to their investment methods or operation styles:
1.VC(VentureCapital Fund) to invest in early-stage enterprises or high-tech enterprises;
2. growth funds, a private equity fund in a narrow sense, invests in unlisted shares of enterprises in the expansion stage, generally not for the purpose of holding shares;
3. Buy-out funds mainly invest in listed or unlisted shares of mature enterprises, aiming to gain control of mature target enterprises, thus integrating enterprise resources and enhancing enterprise value.
In China, the development of private equity investment funds can be roughly divided into two types: one is the market-oriented operation in the form of limited partnership; The other is the government-led venture capital fund and industrial investment fund.
Internationally, private equity funds adopt traditional corporate system, contract system and new limited partnership system. In countries where private equity funds have developed for a long time, such as the United States, newly established private equity funds mostly adopt limited partnership system, while in China, the organizational forms of private equity investment funds can be roughly divided into two types: one is the market-oriented operation in the form of limited partnership enterprises; The other is the government-led venture capital fund and industrial investment fund. However, in the actual operation process, the above-mentioned organizational model is not clearly defined, and because of the inconsistent legal provisions in various countries, the definition of the establishment and organizational management model of private equity funds is not exactly the same, and they often coexist in many established funds.
As we just said in the definition, the ultimate goal of private equity investment is profit, which requires PE to have an effective operation process of discovering and creating value. This process means that the theme must choose companies with growth potential or underestimated. After investment, it is necessary to improve the management, strategic development and investment strategy of the target, and then achieve the goal of profit through equity appreciation and withdrawal when the time is ripe.
Then let's briefly describe the operation process of PE, discover value and create value. This process can be divided into five links: raising funds, selecting target enterprises, investment and management, withdrawal and distribution.
1. raised funds: PE comes from a wide range of sources, including government, enterprises, institutional investors, individual investors and foreign investors, and the investment period is generally long. Illegal fund-raising may be involved in the fund-raising process. In order to prevent this phenomenon, the Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Illegal Fund-raising, which came into effect on October 4, 20 1 1, clearly stipulates that four constitutive requirements must be met at the same time:
1, absorbing funds without the approval of relevant departments according to law or in the form of borrowing legal business;
2. Publicize to the public through media, promotion meetings, leaflets, mobile phone messages, etc.
3. Promise to repay the principal and interest or pay the return in the form of money, kind, equity, etc. In a certain period of time;
4. Absorb funds from the public, that is, social unspecified objects.
Second, select the target enterprise: different investment institutions have different methods and standards in selecting the target enterprise, but the same thing is that the enterprise must be an enterprise that can create value, such as good industry competitiveness, team foundation, technical level, product characteristics, business model and so on. Before deciding to invest, the investment manager will do a comprehensive and detailed due diligence to fully understand the basic situation of the enterprise. This kind of investigation procedure is often extremely strict. According to this data and other considerations, the final investment strategy can be drawn.
Third, investment and management: Private equity investment funds are mainly divided into two categories: venture capital and merger and acquisition investment. Venture capital funds invest in the start-up period and growth period of enterprises, and venture capitalists can get several times of income through the growth process of venture enterprises from small to large. M&A investment fund requires absolute control over the target enterprise. Target enterprises are generally in the mature stage and encounter bottlenecks that restrict development. Through their own knowledge, experience, communication and selection of management personnel, PE investment experts can reorganize the finance of enterprises or enterprises, optimize the governance structure, improve profitability, and make enterprises change the unfavorable situation and regain the development momentum. The operation of M&A funds is more complicated and difficult than that of venture funds, which requires higher investment art. ..
4. Exit: There are three ways of private equity investment: one is IPO, which is usually considered as the most ideal exit way. However, due to the strict examination and approval of listed companies in China and the single level of capital market, the IPO channels in China are not smooth at present. Second, equity transfer. Equity transfer plays an important role in the United States, especially when the stock market is in a bad state, and it occupies a large proportion in China. The main ways of equity transfer are repurchase by original shareholders, buyout by management and transfer to a third party. Third, liquidation. When the enterprise is not well managed and the problem cannot be solved, it will enter the liquidation procedure. Although liquidation is the result that everyone does not want to see, when the enterprise is in trouble and cannot be changed, if the assets of the enterprise after liquidation are higher than the value of continuing operation, it shows that the enterprise has no need to continue operation.
5. Distribution: Under the partnership system, general partners have the highest income, and they are responsible for investment decisions. Therefore, 1.5%-2.5% of the fund should be withdrawn as the management fee every year. If they reach the minimum expected rate of return, they can extract 20%-30% of all profits. These returns are the motivation for fund managers to invest.
The above is the whole operation process of private equity fund, from which we can see its complexity and calculate the rich income of investors and fund managers. Of course, investment companies investing in private equity funds are also beneficial! For example, when selecting a target enterprise, the fund manager will conduct due diligence on the enterprise, which will make the investment safer and help the invested enterprise to define its own market positioning and future development direction. For another example, private equity investment can coordinate the interests of shareholders and management, so that shareholders and management Qi Xin can work together to promote enterprise growth in Qixin; In addition, the private equity investment foundation pays more attention to the long-term value and growth of the target enterprise, and will make detailed and comprehensive long-term development plans for the enterprise, and take various reward and punishment measures to ensure the implementation of the investment plan, improve the business situation of the enterprise, and at the same time avoid the target company from giving up its long-term business goals because of short-term profits.