Research On The Contract Design Of Private Fund Under The Limited Partnership

Many scholars are interested in the contract design of private fund because of its unique issuance characteristics,high return against high risk and diverse organizational systems.In real life,compared to corporation,limited partnership is favored by fund management companies because of its unique advantages.Therefore,this paper mainly studies the contract design of private funds under limited partnership system.Different from the traditional principal-agent problem,this paper considers that both parties will make efforts to affect fund return under single-period,discrete multi-period and continuous time.Taking the scarcity of excellent human capital into consideration,the general partner usually has the right to design contracts.And the limited partner often participates in the operation of the fund through explicit or implicit means.So,the return of fund is affected by the joint efforts of both parties under bilateral moral hazard.Firstly,this paper obtains the analytical solution of the optimal contract through the traditional principal-agent theory in the single-period model,and conducts equilibrium analysis and numerical simulation.Secondly,the optimal contract analytical solution is obtained by the reverse recursion method in the discrete multi-period model.Finally,in the continuous time model,the explicit expressions of the optimal effort of both parties and fixed management cost are obtained out of dynamic programming and stochastic control theory.The study found that,in the single-period model,the optimal sharing ratio changes in the same direction as the general partner ’s power,and in the opposite direction with the effort cost,risk aversion coefficient and market uncontrollable risk.And the decision-making power can effectively motivate their efforts.In the discrete multi-period and continuous-time models,with the deepening of cooperation,the trend of sharing ratio and optimal efforts depend on the trade-off between two parties’ power.If the general partner is in a higher position,the optimal sharing ratio and his own efforts will increase with the deepening of cooperation.As for the fixed management cost,no matter in which case it will be affected by exogenous parameters,there is no absolute direction of change.