Factors Affccting The Exit IRR Of Private Equity Fund In China

Originated firstly in the US during 1930s,private equity,or PE,is an alternative investment method targeting equity of a company or a project.Different types of PE investment include Venture Capital,Growth Capital,Buyout,Distressed&Special Situation,Real Estate and Real Assets investments.After years of development,private equity becomes a very mature investment method and an important part of the financial system,and foreign scholars also have conducted numerous relevant researches.In comparison,private equity only emerged in China over 20 years ago and has experienced fast development after 2010.However,China’s PE market is still in its preliminary development stage and relevant researches are still limited due to the lack of data and information accessibility.This article presented the development history of China’s PE market as well as the current status quo and highlighted its special phenomena as well as characteristics.Also,using 608 observations of PE investment exits in the database of PEDATA during 2007 to 2019,this article examines the correlations between PE investments’ internal rate of return(IRR)and targeting variables,with the aim of enriching relevant researches on China’s Private Equity market and giving recommendations to investors,management firms and regulators.Currently,PE investments concentrate heavily in the East and large cities of China.Targets in technology and internet industries are most popular for management firms.Venture Capital and Growth Capital are the main actors in China’s PE market.And IPO is the most adopted exit method for PE investments.Multiple-regression results indicate that fund size,fund vintage time and fund type don’t have statistically significant correlation with IRR.Investment size,and duration are negatively correlated with IRR.Exit methods including IPO,merger and acquisition(M&A)and trade sale are significantly correlated with IRR,and M&A and trade sale are better exit options compared with IPO.In addition,IRRs of PE funds locating overseas are significantly higher than those locating in mainland China.This article is innovative in terms of sample data as well as targeting variables,and could be a good compliment to studies relating to China’s PE market.However,this article could be further improved and tested by future studies containing larger data sample,more targeting factors and more authoritative explanations.