Discussion On System Design Of RMB Private Equity Fund

The appearance of Bohai Industry Investment Fund in December 2006 made people pay much more attention than ever to RMB private equity funds. Different from foreign private equity funds with both funding and withdrawal of investments abroad, RMB private equity funds are raised and withdraw their investments at home. Building RMB private equity funds not only help to avoid national restrictions for foreign mergers and acquisitions, but also help to expand domestic investment channels and to ease the pressure of excess liquidity. So it is encouraged by China. This paper concerned the system design of RMB private equity funds, which should ensure the operational efficiency of RMB private equity funds and should properly handle the relationship between RMB private equity funds and the government.Firstly, this paper made comments on current situation of domestic and foreign study on system design of private equity funds, then described the definition of RMB private equity fund, identifying it from other concepts which are easily confused. This paper also introduced the advantages of RMB private equity funds in China.Secondly, in light of existing study achievements and practical system environment, this paper discussed the two aspects of system design of RMB private equity funds.One aspect is about how to prevent agency problem. This paper used the principal- agent theory of information economics to discuss the mechanisms to prevent problems of adverse selection and moral hazard, which exist between private equity funds and investment-target enterprises, and between investors and managers of private equity funds. This paper also compared three available organizational forms by analyzing both advantages and disadvantages of each one, and took Bohai Industry Investment Fund as an example to analyze the selection of organizational form of private equity funds.The other is about how to deal with government. This paper used government utility theory to analyze the motives of government acts. Based on the analysis, this paper discussed how to handle the relationship between RMB private equity funds and government. Then this paper introduced the government leading fund for PE, which was considered the most proper mode to reflect government preference of efficiency and to limit government preference of rent. This paper also made an analysis on the case of Tianjin Binhai-zone leading fund for venture capital.