Dual Agency Relationship Study Of Private Equity Funds

In recent years, as financial innovation private equity funds have been rapidly development in China’s capital market. With the introduction of the GEM, the private equity funds emerged in the public’s eyes. Compared with traditional private equity investment, PE has a special mode of operation---the dual agency relationship.With the special mode of the private equity fund, its investors, investment managers, investment companies of the three exit a dual agency relationship,In this paper, the author conducts the organizational form of private equity funds and investment terms. Beginning with the concept of private equity funds and type of summary of academia, this paper clearly stated the contents of the private equity areas. For the corporate governance of private equity funds, in the first layer of principal-agent relationship, this paper puts forward some suggestions for China’s Private Equity Fund’s forms which including the company’s system, the limited partnership and trust system; on the second layer of agency relationship, this paper focuses on the governance of private equity investment process including due diligence, valuation analysis, investment management and investment exit. According to the current development of China’s private equity fund, this paper has made a number of recommendations for the development of local PE.In this paper, the innovation may be perspective which lies in the research’s framework of the tripartite people to private equity funds------investors, investment managers and investment companies. From some of the current study, the scholars limited to qualitative techniques, but mostly paper focus on a party of China’s private equity funds. Some papers which proposed policy recommendations systemic need to be strengthened. Research methods of this paper integrated use of the empirical analysis, case studies, comparative analysis of research and summarize the comprehensive analysis of the interpretation of a combination of research methods. With using game theory analysis this paper focus on the mode of operation of the Fund and the problem of dual agency relationship.This article begins with an introduction part. Private equity funds are in the stage of rapid growth in China’s development. Summarizing the research results and conclusions of researchers at home and abroad on private equity, this paper focuses on the basic theory of private equity funds which distinguish the difference between private equity security funds and equity funds which also are divided into venture capital funds, development funds, M&A funds, the financial plight of funds, mezzanine funds and listed private equity issuance fund. Then the operating mechanism of the private equity fund is explained which including prepare for investment, find the target, the screening of projects, the appraisal, due diligence, consideration of decision-making, negotiated transactions, involved in the management, capital operation, served its purpose and look for another the subject.The problem of private equity funds is the dual agency relationship. The first layer of the agency relationship is between investors and fund managers. The second layer of agency relationship is between the fund managers and investment companies. Followed by the double principal-agent problem of private equity funds were a series of theoretical analysis. As the first layer of the agency relationship between investors and fund managers, this chapter focus on the organizational form of private equity, which using game theory analysis on the company system. In the second layer of the agency relationship, this paper is focus on the stage of the due diligence stage and follow-up management. We need to design a reasonable and effective governance mechanisms to coordinate the relationship between fund managers and corporate managers. When fund managers choose to invest in companies, the prevention of the adverse selection problem arising from asymmetric information, mainly through a rigorous review and design of investment terms.By drawing on the organizational forms of foreign private equity funds and investment provisions this paper sets to commence discussion on the dual principal-agent problem. The that company partnership of the UK, the limited partnership in the United States, the trust partnership of Japan described the mode of operation which have advantages and advantages.Commissioned in the second layer of the agency relationship this paper focus on " Venture Capital Term Sheet" agreement.Finally, this paper made recommendations on the development of the local PE. Starting from a policy perspective, government should take measures to promote the development of China’s private equity investment funds. For healthy development of financial markets, the Government has the ability to build the system which can effectively regulate financial innovation activities and the risk is limited to the controllable range. We should be learning experiences from the international counterparts to build a law, the government, a combination of industry self-regulation among Chinese characteristics of the regulatory system to promote the healthy and rapid development of the private equity.