This gives them leverage to play a prominent role in the reorganisation or liquidation stage. Growth A type of private equity investment in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business. General partners A partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership and the right to participate in its management. Private equity fund A private equity investment fund is a vehicle for enabling pooled investment by a number of investors in equity and equity-related securities of companies. RecapitalizationThe reorganization of a company’s capital structure. A company may seek to save on taxes by replacing preferred stock with bonds in order to gain interest deductibility.

private equity glossary

Investors invest in the appropriate feeder fund, which flows through to the master fund. An intermediary is a person or organization that acts a middleman between investors and companies raising funds. Intermediaries can include broker-dealers, regulated byFINRA, as well as unregisteredfinders. Care must be taken when entering into any transaction with afinder, since only registered broker-dealers are allowed to be paidtransaction-based compensationfor making a capital introduction. The Intrastate exemption is available if an issuer will only be offeringsecuritiesin a single state. The exemption requires that the issuer be organized in the state it intends to offer its securities. It is a narrow exemption and can easily be lost if not followed exactly. Because of the risk of losing the exemption, we generally recommend that the intrastate exemption be relied upon only as a backup to another exemption. The Cayman Islands is a tax-exempt jurisdiction, allowing offshore investors and US tax-exempt investors to avoid paying US taxes on hedge fund gains. Warrant Coverage A contract that grants the right to purchase stock from the company at a certain price in the future.

Capital Calls

The first year that the private equity fund draws down or calls committed capital is known as the fund’s vintage year. Paid-in capital is the cumulative amount of capital that has been drawn down. The amount of paid-in capital that has actually been invested in the fund’s portfolio companies is simply referred to as invested capital. Syndication– The sharing of deals between two or more investors, normally with one firm serving as the lead investor. General partners are responsible for managing the investments within the private equity fund. For their services, they earn a management fee, typically 2% of commitments paid annually although there are exceptions when the rate is less.

Income returnThe percentage of the total return that is generated by the income from operations of a property, fund or account. Fully diluted sharesThe number of shares of common stock that would be outstanding if all convertible securities were converted to common shares. Fiduciaries may include staff, trustees, investment board members, administrators, consultants, actuaries and investment managers. ERISA permits civil action to be brought by a beneficiary against any fiduciary that has breached its fiduciary duty. Fiduciaries can be held personally liable for any losses to a plan resulting from such breach. Exclusive agency listingA written agreement between a real estate broker and a property owner in which the owner promises to pay a fee or commission to the broker if specified real property is leased during the listing period. REITs must pay at least 90 percent of their taxable income in the form of dividends. DiscretionThe level of authority granted to an adviser or manager over the investment and management of a client’s capital. A fully discretionary account typically is defined as one in which the adviser or manager has total ability to invest and manage a client’s capital without prior approval of the client.

Your First 90 Days In Private Equity

Balanced fund– A fund that spreads its investments between various types of assets such as stocks and bonds. Investors can avoid excessive risk by balancing their investments in this manner, but should expect only moderate returns. Advisory board– An advisory board is common among smaller companies. It usually consists of people, chosen by the company founders, whose experience, knowledge and influence can benefit the growth and direction of the business. The board will meet periodically but does not have any legal responsibilities in regard to the company. Acquisition finance– Companies often need to use external finance to fund an acquisition. This can be in the form of bank debt and/or equity, such as a share issue.

  • Rule 505 requires that strictly prescribed information be given to the unaccredited investors, including audited financial statements.
  • This period is generally shorter for buyout funds than for early-stage and expansion funds.
  • The main components of net debt are interest-bearing bank borrowings and cash.
  • Over-the-Counter A market for securities made up of dealers who may or may not be members of a formal securities exchange.

Specialized FundA private equity fund strategy whereby the focus in on specific investment targets (e.g., sectors, stages of development), as distinct from a Balanced Fund. Rights OfferingIssuance of “rights” to current shareholders allowing them to purchase additional shares, usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may wish to exercise them. Rights offerings are particularly common to closed-end funds, which cannot otherwise issue additional ordinary shares. Private Investment In Public Equities Investments by a private equity fund in a publicly traded company, usually at a discount. Preemptive RightA shareholder’s right to acquire an amount of shares in a future offering at current prices per share paid by new investors, whereby his/her percentage ownership remains the same as before the offering. OversubscriptionOccurs when demand for shares exceeds the supply or number of shares offered for sale.

This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business – and the market it operates in – extremely well. Limited partners– Institutions or individuals that contribute capital to a private equity fund. LPs typically include pension funds, insurance companies, asset management firms and fund of fund investors. Most private equity firms will start raising a new fund when their current fund is around 70% invested. Venture firms tend to raise new funds earlier than buy-out firms, because they usually need to invest in follow-on rounds for their portfolio firms. UBTI includes most business operations income and does not include interest, dividends and gains from the sale or exchange of capital assets. Hedge Funds trade their own securities and therefore the tax exempt investor’s share of such income of the hedge fund is not UBTI and not subject to federal income tax. However, hedge funds may subject tax exempt entities to UBTI under certain Circumstances where the hedge fund is borrowing or purchasing securities on margin.

RecallableThe total amount of distributions that may be recalled by the fund at a future date. Re-capitalization FinancingCapital provided for a significant overhaul of a company’s financial structure. Preferred DividendA dividend ordinarily accruing on preferred shares payable where declared and superior in right of payment to common dividends. Pay to PlayA “Pay to Play” provision is a requirement for an existing investor to participate in a subsequent investment round, especially a Down Round. Paid-in to Capital Committed The ratio of contributions to date measured against its committed capital. Over-the-Counter A market for securities made up of dealers who may or may not be members of a formal securities exchange. The over-the-counter market is conducted over the telephone and is a negotiated market rather than an auction market such as the NYSE.

Preferred Return, Carried Interest

A private equity fund that received its capital directly from members of the endowment or the foundation. Default code used for a private equity fund that was funded directly from the company who raised the fund. A private equity fund that received its capital directly from the commercial bank that raised the fund. A private equity fund formed by a local community to help fund community interests, such as housing developments, workforce programs, childcare centers, schools, businesses, and community centers. Group of wealthy individuals that pool their own capital together in order to make private equity investments. The age of the company at the time of its private equity financing in relation to its Founded Date. Statements of fact and promises that underpin specific elements of the transaction set out in an agreement. A fee charged by a PE fund’s investment manager to cover day-to-day expenses of the fund, including salaries, office rent and costs related to deal sourcing and monitoring portfolio investments. It typically ranges from 1 to 2.5% depending on the size and strategy of the fund and the bargaining power of the PE firm during fundraising. Private markets –A term used in the US to refer to private equity investments.

private equity glossary

A CDS is considered insurance against non-payment and is also a tradable security. This allows a fund manager to take positions on a particular issuer or index, without owning the underlying security or securities. A fund that pools money from investors to invest in shares, bonds, cash and/or other securities from the UK and elsewhere. When referring to a portfolio, the capital reflects the net asset value of a fund. More broadly, it can be used to refer to the financial value of an amount invested in a company or an investment portfolio. A real estate Sponsor is a principal investor in a real estate project, responsible for sourcing the investment and executing on its business plan. In many cases the Sponsor has a background in asset management and construction/development, as well as real estate finance. Real Estate Investment Trusts are tax efficient entities that own or invest in income producing real estate.

Currently PE/VC Backed, Formerly PE/VC Backed, and Status Unknown are the options. A company whose acquisition has been announced, but has not yet officially closed. The number of investor funds at each round date within the selected date range. The count of initial public offerings that meet the selected criteria. The value of the fund after accounting for unrealized gains/losses, general partner fees and carried interest.

A pricing mechanism that adjusts the preliminary purchase price based on the difference between a company’s net debt and target working capital at signing and the actual balance sheet values at closing. Drawdowns of limited partner commitments over the investment period of a fund. “Capital calls” fund investments and pay for a fund’s fees and expenses. A metric to determine the total equity base by assuming that all preferred shares have been converted into common shares based on a prespecified conversion ratio. Many people use the term venture capital very loosely and what they actually mean isprivate equity.

Asset backed commercial paper– Short-term debt that has a fixed maturity of up to 270 days and is backed by some financial asset, such as trade receivables, consumer debt receivables, or auto and equipment loans or leases. The 30-day current yield are annualized net yields that describes 1-year earnings assuming dividends are reinvested at the average rate of the last 30 days. A comprehensive assessment of noteworthy trends shaping the global investment risk environment and our portfolio allocations. Our monthly Global Equity Observer shares our thoughts on world events as seen through the lens of our high quality investment process. The Helm is a New York City-based venture firm committed to elevating and investing in female entrepreneurs. This is used to measure the engagement and growth of a product or app. A contract between two parties that restricts the sharing of information disclosed in the agreement. Companies can use NDAs to protect confidential information, ensure their ideas are not stolen and protect trade secrets. Whether you’re a founder or funder, read ahead to better understand investing terms. “A Venture Partner is a person who a VC firm brings on board to help them do investments and manage them, but is not a full and permanent member of the partnership,” according to Fred Wilson.

Vacancy factorThe amount of gross revenue that pro forma income statements anticipate will be lost because of vacancies, often expressed as a percentage of the total rentable square footage available in a building or project. UnderwriterA company, usually an investment banking firm, that guarantees or participates in a guarantee that an entire issue of stocks or bonds will be purchased. Under constructionThe period of time after construction has started but before the certificate of occupancy has been issued. Total assetsThe sum of all gross investments, cash and equivalents, receivables, and other assets presented on the balance sheet. Time-weighted average annual rate of returnThe constant annual return over a series of years that would compound to the same return as compounding the actual annual returns for each year in the series. TakingA common synonym for condemnation, or any interference with private property rights, but it is not essential that there be physical seizure or appropriation. Social investingInvestments driven in whole or in part by social or political (non-real estate) objectives. Under ERISA, social investing is economically justified only if proper real estate fundamentals are considered first. Security depositA deposit of money by a tenant to a landlord to secure performance of a lease. It also can take the form of a letter of credit or other financial instrument.

MortgageA legal document by which real property is pledged as security for repayment of a loan until the debt is repaid in full. Market rental ratesThe rental income that a property most likely would command in the open market, indicated by the current rents asked and paid for comparable space. Market capitalizationOne measure of the value of a company; it is calculated by multiplying the current share price by the current number of shares outstanding. MandateA mandate is an authorization or directive to carry out a policy or course of action. For example, an investment manager private equity glossary could receive a mandate from an investor to use an allocation of funds for a specific purpose or strategy. Implied cap rateNet operating income divided by the sum of a REIT’s equity market capitalization and its total outstanding debt. Hybrid debtA mortgage position with equity-like participation features in both cash flow and the appreciation of the property at the time of sale or refinance. Holding periodThe length of time an investor expects to own a property from purchase to sale. Equity Market CapitalizationThe market value of all outstanding common stock of a company.

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However, the temptation to flip a new issue once it has risen in price sharply is too irresistible for many investors who have been allocated shares in a hot issue. Enterprise ValueThe total value of a business, the price at which it may be sold. Elevator PitchAn extremely concise presentation of an entrepreneur’s idea, business model, company solution, marketing strategy, and competition delivered to potential investors. Should not last more than a few minutes, or the duration of an elevator ride. Distributed to Committed Capital The Ratio of total distributions to Limited Partners to date, to the total committed capital of the fund. Demand RightsContemplate that the company must initiate and pursue the registration of a public offering including, although not necessarily limited to, the shares proffered by the requesting shareholder.

Previously, Nick was a Vice President in the Alternative Investments group at Credit Suisse where he was responsible for leading and managing alternative investment fund investments. He invested globally and evaluated investments in private credit, real estate, venture capital, private equity and hedge funds. Nick has extensive experience within the alternatives investment industry. Nick received a BA in International Affairs from Lewis & Clark College. Private equity refers to taking an equity or ownership interest into a company or asset that is privately held. While the private markets are significantly smaller than the stock market, the growth of private equity is significantly greater than that of the stock market. This growth has left many fund managers struggling to manage their portfolio on outdated infrastructure and legacy technology.

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In the world of alternative investments, these tools allow portfolio managers to quickly identify red flags and easily spot trends across their portfolio companies and deal pipeline. Tombstone –When a private equity firm has raised a fund, or it wishes to announce a significant closing, it may choose to advertise the event in the financial press – the ad is known as a tombstone. It normally provides details of how much has been raised, the date of closing and the lead investors. Management buy-in – When a team of managers buys into a company from outside, taking a majority private equity glossary stake, it is likely to need private equity financing. An MBI is likely to happen if the internal management lacks expertise or the funding needed to ‘buy out’ the company from within. It can also happen if there are succession issues – in family businesses, for example, there may be nobody available to take over the management of the company. An MBI can be slightly riskier than a MBO because the new management will not be as familiar with the way the company works. We have provided a glossary to help you understand important private equity and venture capital terms.

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