The Value Co-creation of Private Equity Fund in China
-- Customer Participation, Virtual Vehicle and Service System

Abstract

In China, based on the existing and dominant management method of private equity fund (PE), a general partner (GP) takes full responsibility for the running of PE This entails a closed management style for all activities of the fund, such as investment, fundraising and management. GP creating value and limited partner (LP) sharing value is still the current mainstream management method. However, in recent years, due to the change of the whole economic structure and environment in China, the profit rate and the project survival rate of PE under the management of GP has declined dramatically necessitating consideration of alternative methods of management to respond to these challenges.

Academic research on customer participation and value co-creation under a Service-dominant logic (S-D) framework has been studied for many years in China and worldwide. However, there has been less research on customer participation value co-creation under service-dominant logic, especially as evidenced by empirical evidence from China's PE industry. Research on this issue can have a positive impact on dealing with the current problems faced by China's PE industry. Therefore, this thesis explores these basic and important problems. According to the service-dominant logic, this study focuses on customer participation value co-creation, value co-creation vehicle and value co-creation service system. Value co-creation is an important part of S-D logic, which is created value jointly by the customer and the enterprise. Value co-creation could increase the perceived value and the loyalty of customer. Therefore, based on S-D logic, this thesis tries to illustrate a new pathway to solve these problems for China's PE funds in a logical manner combining theoretical insights with empirical evidence.

The research questions that this thesis addresses are as follows. Firstly, the hypothesis is verified that the value co-creation of customer participation has a significant positive impact on customer perceived value. Moreover, the complete mediation effect of customer participation in value co-creation of PE on customer perceived value is explored. Secondly, using actual PE (APE) to build a special vehicle, which is a virtual PE (VPE) which provides a platform for customer participation in PE value co-creation processes. It demonstrates that customer participation (engagement) has a partial mediation effect in value co-creation processes. Thirdly, APE and VPE jointly carry out value co-creation, this interaction process not only makes the high-level integration and optimization of resources possible but will also bring unexpected creativity to PE. This needs to be supported by the service system.

In the constructed service system, this thesis focuses on researching customer demand preference discovery and Clustering modeling, in order to determine potential customer demand and value propositions; it also studies collaborative filtering recommendation and decision-making and discusses collaborative decision-making mechanisms for PE. Finally, this thesis focuses on PE equity assets monetization and transaction method. Further, it emphasizes that the fair value of PE equity assets should not be the scalar algebraic sum of the initial value + expected excess return value, but the vector sum (module) - composite value of the complex number. This thesis provides recommendations and conclusions for management strategies for those working in the Chinese PE industry to pursue in strengthening all aspects of value co-creation.