A Theoretical Research Of Optimal Decision Of Private Equity Investment

Private equity is the investment funds to financing fund in a non-public way from some investment institutions or wealthy individual investors,which is characteristics at well product targeting,flexible,low information disclosure requirements,attractive to senior talents,the diversity in organization form and so on.Although private equity is only a decade old,it has been rapidly developed in recent years and been adopted by many financial institutions,its market share are continuous increasing and shows a great market potential.Due to different levels of management and the lack of scientific and standardized operation of the investment decision and management,many of the fund management organ rely on the past immature industry experience to carry out the investment decision which restricted the further development of private equity funds.Therefore,this paper mainly studies the optimal decision theory of private equity investment.Firstly,the paper focused on the investment process of private equity,analyzed the function of the investors and fund managers.Secondly,Based on the theory of the principal-agent,built an investment decision making model for the private equity investors under the circumstance of asymmetric information,namely successful fund management revenue model and the unsuccessful fund management revenue model.Finally,through the analysis of the investment decision making model,study the optimal decision contract of the private equity fund and conclude the optimal equilibrium results of private equity investment.Through the analysis of the model and numerical simulation of the theoretical research result,the basic conclusions are as following:(1)Through the research of each installment decision of the fund and current earnings of the funds to decide the investment strategies of the next installment to reduce the risk of investment.(2)Contract design should be incentive fund managers to work hard,the fund managers' incentive compatibility conditions is put forward.(3)The optimization formula is proposed to determine the optimal private equity asset management scale and the optimal into proportion.(4)This paper obtains the main characteristics of the optimal contract of private fund under perfect competition conditions.