As a fund GP, investors use their ability to multiply funds to concentrate idle funds in society under his management. PE is not the focus of large institutional investors, but the overall financing scale of PE industry is growing substantially.

There are three main reasons for institutional investors to invest their funds in illiquid private equity funds: institutional investors' funds are long-term and have no great repayment demand, which can guarantee long-term commitment and low liquidity requirements; The overall return of PE is higher than the average return of the market. While suffering from poor liquidity, investors obviously hope to get higher returns. There is little correlation between the value of PE assets and publicly listed stocks, and the independence of PE assets makes PE assets a good choice to diversify investment risks.

The success factor of financing, institutional investors mainly consider the historical performance, business strategy and preferential conditions of the team and PE institutions when choosing PE institutions.

In the process of institutional investors' judgment, the management team is the primary and core determinant. Investors pay special attention to two factors, moral hazard and information asymmetry; The historical performance of PE has become the most objective information to explain the investment level of the whole PE institution; Whether the investment strategy of PE institutions is consistent with the investment strategy of institutional investors themselves, and whether PE has the operational ability to really implement the investment strategy is another factor for institutional investors to examine. It can provide some preferential conditions, which is one of the reasons why investment institutions can choose PE.

Source of funds, the good news of private equity fund financing is that the number of institutions and funds planning to invest in PE is increasing rapidly. Pension fund is one of the most important institutional investors in major European and American countries, and it is also an important source of funds for other financial intermediaries in the capital market. For university endowment funds, private equity funds are important investment targets. Asset management companies are also an important source of funds. Portfolio funds have also become an important LP in the field of private equity funds. Other institutions include insurance companies and commercial banks, private (family) investors and government funds. These sources of funds have occupied a certain position in the PE industry in different periods.

In the process of financing, when PE institutions have organized the core management team and feel that they have made a careful plan to launch the fund, they can start the financing process. The whole process of financing can be divided into four stages: pre-sale, marketing, transaction completion and post-event management. Pre-sale work is mainly analysis, planning and planning. By preparing a large number of materials and analyzing all aspects of information, it lays the foundation for the smooth progress of financing work. After the pre-sale, it is a formal marketing process, full of trips, meetings and fatigue. During this period, the core figures of PE will talk with potential institutional investors and introduce the target scale, team, strategy and terms of the financing fund. Interested institutions will conduct due diligence, not only to inspect and verify some situations of PE institutions. If all goes well, institutional investors will leave a clear intention of fund investment, and then enter the completion period of testing negotiation skills. The core work during this period is to negotiate specific investment terms with the future LP and implement the final legal text contract. After signing the agreement and completing all legal procedures, the fund was officially announced.

The role of financing agents, financing agents are important coordinators of the allocation of funds from lp to GP, and they help GP to raise funds from LP. Financing agents have accumulated profound market experience and knowledge from different fund financing processes, which can help GP design and plan funds effectively, help GP manage the whole financing process, save GP a lot of time, and use their rich financing experience to support the smooth completion of fund financing.

The most important financing document, PPM (Memorandum of Private Financing), is a formal document submitted by fund financing to investment institutions, which is similar to the important position of prospectus of listed companies in publicly raising funds. LP mainly relies on PPM to obtain fund information, and PPM is the key information source for LP to make investment decisions. PPM should include the following necessary contents: describe the scale and duration of funds, the expected closing time and the summary of fund management before GP; Investment ideas of institutions and funds, including investment strategies and competitive advantages of management companies in specific markets; Introduce investment experts and committees; A description of the fund company's past performance; GP/LP clauses, including distribution mechanism, management fee, GP investment and fund's cooperative investment strategy; Legal issues and tax issues; Accounting and reporting.

For most private fund managers, financing may always be the most painful job, but as long as LP is willing to invest, the pain is worth it.