The Risk Management Enhancement Of YH’s Private Equity Investment

Private equity (hereinafter referred to as "PE") in this article refers to the form of private equity investment in the non-listed companies, in the hope of making profit through listing, mergers and acquisitions, or management buyout.Since PE investors have objectives of return and time horizon, and IPO is the primary source of exit for PE investment, PE fund is more concerned about the probabilities of the target companies going public for a certain investment horizon. In addition, there are uncertainties regarding target companies’operation and the microenvironment. All of these result in the high risk level for PE investment in domestic market.This article starts with the fundamental theories with respect to risk management, introduces PE investment and its risk inherent, the main methods to recognize risk, the characteristics of risk and the process for risk management. As risk control is the core for risk management, the paper focuses on the risk characteristics of PE investment in different stages, and discusses the typical process for PE investment and risk management procedure in each stage.Based on the review of YH firm’s management structure, investment strategy and investment process, the paper analyzes the firm’s advantages and disadvantages in risk management regarding PE investment. At last, according the principle of risk management, the article puts forward suggestions for YH firm to build up an improved risk management system, and furthermore, provides a reference for other mid-sized PE firms to conduct risk management.