The Research Of Private Equity Of Usa And The Development Of The Private Equity Of China

The United States of America(USA or U.S.)is the first country to develop private equity (PE) and the most developed country in private equity in the world. U.S. private equity funds invest their money to global market; at the same time, the management model of U.S. private equity, including the type of organization known as limited partnership, investment operating procedures and investment techniques have quickly spread to other countries. Moreover, as the increasingly amount and market share in capital market of USA, private equity makes more and more influence on the portfolio companies and economy development. Therefore, it has the important theoretical and realistic significance to research the major features and the change process of private equity of USA, the relationship between the PE market and other levels of capital market, and mutual influence among the capital market, entity economy and macro economy. So the research of U.S. private equity provides enlightenment to understand the development of private equity of China.The dissertation contains 7 chapters. The first chapter is introduction. In this chapter, background of the topic and theoretical and practical significance is elaborated, related literature is reviewed, the structure arrangement and research method is clarified, and the innovation and inadequacy of this research are given.The second chapter is the features of U.S. private equity. In this chapter, the author researches into the panorama and major features of U.S. private equity with the market analysis method. It firstly reviews the definition and classification of private equity. U.S. private equity raises capital from high net worth individuals (HNWI), financial institutions and institutional investors such as pension funds, insurance funds and endowment funds. As professional investment institutions of U.S. private equity, the PE funds complete a capital circulation according to certain investment process including projects screening, due diligence, contract design, execute investment, post-investment management and exit. General partners (GP) and limited partners (LP) will share the investment profits according to the limited partnership agreement. In the United States, the overall yield of private equity is higher than that of stock market and bond market. However, the performance is quite different among individual PE funds. The performance of PE funds is determined by the interaction of the risk, return and cash flow. The organizational structure and income pattern of PE funds are designed considering tax avoidance, and U.S. legal principles also encourages long-term investments by applying lower tax rate on capital gains.The third chapter is the macro economic effect of U.S. private equity. In this chapter, the author researches into the economic effect of U.S. private equity on other levels of capital market, financial system, and economy development with the market analysis method. U.S. private equity is a part of private fund market in capital market, and the main functions of PE contain opening up a new investment field, repairing the gap of capital market and perfecting the function of capital market, the notion of active investors supports the better service provision for the entity economy. U.S. private equity realizes the capital circular increment by the movement of Fundraising - Investment - Value-added Management - Exit - Return. U.S. private equity provides not only higher returns for investors, but also the function of value creation which increases the income, employment, labor productivity and corporate governance level of portfolio companies, and promotes the enterprise value, thus makes positive macro impact on the entity and financial economy. Driven by the factors such as the money-chasing, U.S. private equity invests not only capital, but also business strategy, management mode, and all kinds of resources to the portfolio companies, then realizes the value creation by the profit growth, cost cutting, asset rational utilization, financing channels expanding, corporate governance improvement, employees incentives, and financial structure changes of the portfolio companies. In the process of value creation of U.S. private equity, the driving force of money-chasing is the primary cause of value creation. Otherwise, the growth potentiality of portfolio companies is the foundation of value creation; the organizational structure and business model of PE funds are the institutional guarantee of value creation; the development of the entity economy will promote return on capital increase, financial markets expand, efficient allocation of financial resources, product innovation and improvement of financial market; and the development of finance economy will provide a more abundant capital and financial technology sources, thus form macro economic effects of U.S. private equity. U.S. private equity has been focusing on global scope of investment opportunities and produced the positive and negative effects. In general, the low leverage ratio, risk isolation measures and long-term investment properties of U.S. private equity did not bring systematic risk but value increment of enterprises which are the most active micro economic subject in the entity economy. Therefore, in the global financial crisis, U.S. private equity capital has positive effects for the economic recovery.The forth chapter is the institutional analysis of U.S. private equity. In this chapter, the author works over U.S. private equity with the institutional analysis method. Investors, investment institutions and portfolio companies are the three subjects of U.S. private equity. The three subjects and their main functions and behaviors in the process of capital circulation constitute the basic institutional structure of U.S. private equity. There are double levels of principal-agent relationship in the circular increment of capital flow, the principal-agent relationship between investors and investment institutions, and the principal-agent relationship between investment institutions and portfolio companies. The former relationship is materialized by the contract being known as limited partnership agreement signed by general partners and limited partners; and the latter relationship is materialized by the investment agreement. The articles of the two agreements solve the principal-agent problems of moral hazard, holdup, and adverse selection caused by information asymmetry. The institutional structure of U.S. private equity changes from the slow growth stage of 1946 to late 1970s, to the fast growth stage of late 1970s to late 1980s, the diversification development stage of 1990s, and the globalization development stage of the 21st century. In the institution changes process, each import tax-cutting policy enacted, new exit channel opened up or the economic cycle come into prosperity resulted in the industry growth and the diversification of investment pattern. There are four levels of institutional factors which effect the development of U.S. private equity: Firstly, the macroeconomic level factors, including economic cycle, legal system, social environment and culture; Secondly, the PE investors level factors, including demand and supply of capital, asset liquidity, risk, returns and financial instruments; Thirdly, the PE institutions level factors, including reputation, experience, and resources of institution and partners, resource dependence and competition, etc.; Fourthly, the portfolio companies level factors, which are industry traits, scale, growth stage, performance, management and principle-agent level, etc. The interaction and influence of different level factors determine the form, structure and changes of the institution of U.S. private equity.The fifth chapter is the case study of U.S. private equity. Three typical cases were selected to show the operation, characteristics and development of U.S. private equity. From a historical and dynamic perspective, these cases reflect in different aspects the money-chasing, flexible and profitable features of U.S. private equity; and also in different extent, embody the close relationships among U.S. private equity capital, macro economy and financial system. The first case,"the business model of the Blackstone Group", describes the business model and development of the Blackstone Group. As a leading company in PE industry, the Blackstone Group completed the first major IPO of a private equity firm in June 2007, but to keep the advantages of private company by designing complex legal structure and artful contract arrangement; The second case,"the private equity investment of the Yale Endowment", reveals how the institution investors optimize the assets allocation and get a good investment return by choosing to invest in private equity; The third case,"the development of the Carlyle Group and their investment strategies in China", explains the situation that driven by the money-chasing notion, how U.S. private equity changes their investment strategies according to the changes of investment environment.The sixth chapter is the development of private equity of China. China is the important strategic area of international private equity. At the same time, local private equity of China is rising fast. International private equity has the advantages of capital scale and investment experience, but in China, it faces the problem of localization and flexible investment strategies. The local private equity can be to the situation and seize the opportunities, but lacks management experiences and PE professionals. Moreover, related legislation and policies are far behind the development of PE industry in China. The merits of value-added services, professional development, and flexible and effective investment mode of U.S. private equity are valuable for reference to Chinese PE industry. Considering the institutional arrangement, the limited partnership, the relatively loose tax and regulatory policies also have important implications to China to construct multi-level capital market. In the future, foreign and local private investors will invest more capital in private equity in China, and the local institutional investors are the potential important PE investors. China's economic growth of sustainability, population size of consumption ability and the transformation of economic growth mode is a long-term investment opportunities. Different industries upgraded or integrated investment constitute a short-term investment opportunities. The exit routes of China will not be limited to IPO, the merger and acquisition exit and secondary exit etc. will become more and more important. In the perspective of legal environment, the relative policies and legislation of private equity will be improved by the development of private equity of China.The seventh chapter is the conclusions of this dissertation. Firstly, driven by the money-chasing notion, U.S. private equity form macro economic effects besides its capital circular increment. Thus, it has largely promoted the development of entity and financial economy. Secondly, there are double levels of principal-agent relationship in the circular increment of capital flow, and the institutional arrangement of U.S. private equity solved the principal-agent problems of moral hazard, holdup, and adverse selection caused by information asymmetry. The interaction and influence of different level factors determine the form, structure and changes of the institution of U.S. private equity. Thirdly, international private equity, especially U.S. private equity has begun to play a leading role in the private equity market of China. The role of Chinese government is to make tax policies which are conducive to the development of private equity, and build the favorable market environment.