An Analysis Of Private-equity Investment Fund Exit Mechanism In China

Lending policy bias exists in Chinese banks; large state-owned enterprises as well as the state support industries enjoy preferential policies and they are easier to get loans. In contrast, medium and small-sized enterprises are difficult to obtain loans both from the banks and capital market. The long-term problem of insufficient funds that medium and small-sized enterprises faced becomes a great opportunity for private equity, with the help of private equity investment fund, many good enterprises are listed on different stock exchanges and access to good financing channels.However, Private equity investment starts relatively late in China, and the construction of multi-level capital market is still not perfect. Profit model for private equity investment fund is exiting from the investing project and reaping dividends, and now part of the exit phase faces unprecedented difficulties. Exit through the IPO account for nearly90%in2011and fell to70%in2012. Due to the domestic IPO suspended in1Q13, with the support of PE, only17enterprises are listed on foreign stock exchanges but100mergers and acquisitions cases. In the United States, exit through IPO only account for15%, nearly70%through mergers and acquisitions to exit. This suggests that China’s PE exit strategy will undergo major changes in the future.This paper describes the exit strategy and mechanism of private equity fund, combined with present conditions and data, in-depth analysis of the exit problems that the private equity investment funds faced. Domestic IPO suspension makes the exit strategies through public offering unsustainable. Learning from the experiences of the developed countries and with China’s PE market trends in mergers and acquisitions, we try to explore the exit strategies mainly through M&A. Meanwhile, the success of new tertiary board expansion and vibrant market performance provide PE funds a new exit path. However, the capital that private equity funds need to exit is far from current capital market can accommodate, and there are also many needs to improve the current exit path.For these reasons, the last chapter of this paper will focus on the suggestions of improving the multi-level capital market, related facilities of mergers and acquisitions and the new three board market transfer to main board mechanisms; we will also discuss the secondary market exit strategies of private equity investment funds.