From the perspective of investment methods, private equity investment refers to the equity investment in private enterprises, that is, unlisted enterprises. In the process of transaction implementation, the future exit mechanism is considered, that is, through listing, mergers and acquisitions or management buyback, the shares are sold for profit.
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There is a serious information asymmetry in private equity investment activities, which runs through every link from project selection before investment to supervision and control after investment. 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 to the complex and uncertain business environment, and can have a keen insight into the risk probability distribution of investment projects.
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.
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