The Optimal Fund Size Of Private Equity Funds

The sustainable and healthy development of the private equity funds can help improve the functions of the capital market,promote technological development,and enhance the ability to serve the real economy in financial services.The optimal fund size is one of the important issues in private equity funds.This paper mainly studies the optimal fund size in private equity funds,attempts to analyze the factors that affect the optimal fund size,and explores the human capital incentive of fund managers.On this basis,this paper attempts to explain the practice in the private equity funds market,to provide some viewpoints for the development of the private equity funds.Studying the optimal fund size of private equity funds is essentially a study of the interest relationship between fund managers and fund investors.The ideal analytical paradigm to this issue is game theory.Game theory is generally divided into non-cooperative game and cooperative game.The former focuses on strategy and equilibrium,while the latter focuses on alliance and distribution.Based on the fact that private equity funds mostly adopt limited partnership,whose main purpose is to achieve the optimal combination of the human capital of fund managers and the monetary capital of fund investors,thereby maximizing the human capital advantages and the added-value of monetary capital.Therefore,this paper attempts to focus on the cooperative side of the two types of capital,choosing cooperative game as the main analysis framework.Based on cooperative game,the income distribution between the fund managers and fund investors is mainly analyzed using the tool of Shapley value.Starting from the cooperative game framework and Shapley value,based on certain assumptions,this paper constructs a cooperative game model.The research shows that: first,under the condition that fund managers seek to maximize net income,based on the two factors of limited human capital of fund managers and market investment opportunities,there is an optimal fund size for private equity funds,and this point is also the theoretical marginal contribution of this paper.Secondly,the larger the fund size,the greater the optimal human capital investment of the fund manager.The optimal fund size may either be within the investment limit or exceed the investment limit.The optimal fund size is related to the returns of private equity funds and the related costs of fund managers.Thirdly,the interest objectives of fund managers and the other partners,including fund investors,are always inconsistent.Especially when the fund manager chooses a fund size that exceeds its investment limit,continuing to expand the fund size will still stimulate human capital investment,but the added-value of unit monetary capital will decrease due to the ineffective investment of a large amount of monetary capital,which is contrary to the interests of the private equity funds and fund investors,The inefficient investment of monetary capital is ultimately borne by fund investors.