Research On Project Selection Model Of Private Equity Fund Considering Bounded Rationality

As an important way of private investment, private equity investment funds(PE Funds) primarily invest in the project enterprises of high-growth or mature stage; They help these companies grow rapidly, and then they can withdraw by the way of the initial public offerings (IPO) or management Buyouts (MBO) to obtain high profits. This way of investment can stimulate the capital market and the national economy developing rapidly, and PE fund's rapid development will be benefit to the deepening of finance reform, improving of enterprise management and improving of capital markets' efficiency.Firstly, the paper analyzes the facts which affect project selection of PE funds. In the process of investment, a private equity investment fund generates a lot of risk factors which don't exist in the traditional investment projects because of its unique approach. Although experienced members of the investment commission will discuss whether a project is worthy of being invested or not, the sophistication of project enterprises'due diligence and the understanding extent of investment environments such as the markets development trend of products both affect experts' judgments directly; The choice of project evaluation methods also affects the accuracy and validity of evaluation due to various types of project enterprises; Moreover, the evaluation value of the same project will be different because of project evaluators with different degrees of behavioral biases and bounded rationality.It is overestimating or underestimating the value of a project that affects the final revenue of PE funds. Based on this observation, the paper proposes that there are three areas to be controlled: the risks of project enterprises', the value of project enterprises' and the deviation of project evaluators'; Furthermore, time control is also important due to the reason of fund duration. Therefore, the article evaluates the relative efficiency of a number of project enterprises in the way of super efficiency data envelopment analysis (DEA) model with three input variables which are evaluators' degrees of behavioral biases and bounded rationality, payback period of the projects and comprehensive evaluation value of the projects and one output variable which is return per investment of the projects. The paper proves that the model can get the most optimal DMU(decision making unit, project enterprise here) whose relative efficiency is bigger than any other project enterprise by the numerical validation.Secondly, the paper uses anactual case of a private equity company in which the author has practiced. The paper uses the super efficiency data envelopment analysis model with four high-growth enterprises'actual data and obtains the following result:Enterprise ZM is fully efficient and its comprehensive ranking is the highest of the four enterprises; Enterprise ZKST is partly efficient and it requires deeper investigation or by the means of multi-stage strategy or joint ventures to reduce risks; The other two enterprises are not efficient, that is, they have no investment value.The model provides the members of the PE fund's investment commission with a reference basis and thereby it reduces the investment risk.At last, the author concludes the full text that the model of project selection is indeed preferred to select the most optimal project enterprise, and it can reduce the uncertainty and risksof investment in the process of projects selection.The author points out the further study of this area as follows:it is the evaluation indicators of thebehavioral biases and bounded rationality degree that should be refined further;It is good for us to test any other input and output indicators for this project selection model;It is also necessary of using more project enterprises'data to validate whether the model can be promoted.