What are the risk control methods of private equity investment funds?

Investment is risky, some risks need to be avoided by forecasting, and some risks need to be avoided by controlling. Private equity investment is a long-term investment, which requires a strict risk control system to protect the interests of investors.

Risk control means that risk managers take various measures and methods to eliminate or reduce the possibility of risk events or reduce the losses caused by risk events. Private equity investment also has many risks. Since the establishment of private equity fund, risks have been accompanied with it.

Project selection risk and its control;

Project selection is the basis and premise of project investment. Only by obtaining high-quality projects can the subsequent investment management process be meaningful. Project selection is very important for project investment, which requires that project selection must be strictly controlled, and projects should be screened according to investment industry standards, regional standards and project standards, and projects that do not meet the requirements should be resolutely rejected.

1, industry choice

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The expected annual return on investment of commercial investors is generally between 20% and 30%, and PE business should choose high-return industries. It is generally believed that high-return industries are monopolistic, resource-based and energy-based projects, and products are scarce and monopolistic. The annual return rate of high-quality projects in these industries is generally above 40%. From the current practice of PE, the industry distribution is diversified. Traditional industries are still favored, but there are also many rules to follow. New consumer goods, new energy and media are becoming potential industries and should be highly concerned.

2. Regional selection

Project investment always occurs in a specific spatial area, so the quality of regional investment environment will inevitably affect the investment effect. A good investment environment can reduce the operating cost of the project, thus increasing the benefit of the enterprise, while a bad investment environment will affect the normal operation of the project, reduce the investment income and even lead to investment failure. The selection factors include the natural geographical environment, economic environment, policy environment, institutional environment and legal environment of the project area.

3. Compliance selection

The first is the legality of the project, that is, whether the business procedures and certificates of the invested enterprise are complete. Secondly, the feasibility of the project, that is, whether the expected rate of return of PE business can be realized. Thirdly, the scale of the project, that is, the investment of the selected project should be appropriate. If the project is too big, it will not only exceed the investment quota and affordability of PE, but also contain greater investment risks. If the project investment is too small, it will not only lead to economies of scale, but also distract the project manager's time and energy. Finally, the overall quality of the management team, including whether the team members are competent for their jobs, integrity management, unity and cooperation.