A low standard deviation shows the values tend to be close to the mean while a high standard deviation indicates the values are more spread out. In terms of valuing investments, standard deviation can provide a gauge of the historical volatility of an investment. Bonds issued by governments and can be either local-currency-denominated or denominated in a foreign currency. Sovereign debt can also refer to the total of a country’s government debt. A collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges and China interbank bond market. The market access schemes allow international and mainland Chinese investors to trade securities in each other’s markets through the trading and clearing facilities of their home exchange. Expressing an investment’s return through how much risk is involved in producing that return. Typical risk measures include alpha, beta, volatility, Sharpe ratio and R2. Comparing the price of an asset to the market value of similar assets. In property investing, this refers to the ongoing management of properties.

private equity glossary

); write-offs; repayment of preference share/loans; sale to another venture capitalist; sale to a financial institution. PitchBook is a financial technology company that provides data on the capital markets. An amount recorded during negotiations to reflect a historical analysis of the working capital requirements of a target company. It reflects closing accounts as well as an increased or decreased price if a target company has more or less working capital than the target capital on the date of the closing accounts. A pre-arranged financing package offered to potential acquirers that includes all the details of a lending package.

Company

RTOA private company strategy for gaining access to public markets through takeover of a listed business entity. Residual Value to Paid In The ratio of the current value of all remaining investments within a fund to the total contributions of Limited Partners to date. As defined in the current GIPS Standards (/standards/current/Pages/index.aspx), any reinvested capital should be included in the denominator of this ratio. Payback PeriodThe length of time which is takes to recover your initial capital on any investment, i.e., for the investment to return 1x. Once widely used as a means of evaluating rival projects or investments for capital allocation purposes but now largely superseded by IRR. Option PoolThe number of shares set aside for future issuance to employees of a private company. Management TeamThe persons who oversee the activities of a venture capital fund. Management FeeThe management fee is used to provide the partnership with resources such as investment and clerical personnel, office space and administrative services required by the partnership. Lifestyle firmsCategory comprising around 90 percent of all start-ups.

private equity glossary

Feeder funds aggregate commitments from one or more investors and invest directly into the primary fund as an LP. Investing directly into private companies instead of through a fund. Payment of interest and agreed mandatory repayments of debt over a certain time period. By executing a debt push-down, senior lenders have a direct claim on target company assets and eliminate the structural subordination of senior lenders to trade creditors. A measure of a company’s debt relative to a key metric, typically earnings before interest, tax, depreciation and amortization (debt/EBITDA). The seller receives all cash and pays off all debt of the target at the time of sale. A fund in which investors don’t know which assets will be acquired or have any influence over investment decision-making. Process of applying an allocation or trading strategy to historical data to gauge the effect on portfolio or investment performance.

Market, As In the Market

Trade fixturesPersonal property that is attached to a structure that is used in the business. Because this property is part of the business and not deemed to be part of the real estate, it is typically removable upon lease termination. Return on investmentsThe trailing 12-month income after taxes divided by the average total long-term debt, other long-term liabilities and shareholders equity, expressed as a percentage. Red herringThe preliminary prospectus for an initial public offering. Before the registration statement becomes effective, underwriters may use the preliminary prospectus to market the offering. The preliminary prospectus, however, must bear a legend printed in red ink stating that the offering has been filed but is not yet effective. , a Public-Private Partnership is a contractual agreement between a public agency and a private sector entity.

The larger the figure, the more sensitive it is to a movement in interest rates. ‘Going short duration’ refers to reducing the average duration of a portfolio. Alternatively, ‘going long duration’ refers to extending a portfolio’s average duration. When the market price of a security is thought to be less than its underlying value, it is said to be ‘trading at a discount’. Within investment trusts, this is the amount by which the price per share of an investment trust is lower than the value of its underlying net asset value. It may apply to a government or company, or to one of their individual debts or financial obligations. An entity issuing investment-grade bonds would typically have a higher credit rating than one issuing high-yield bonds. The rating is usually given by credit rating agencies, such as Standard & Poor’s or Fitch, which use standardised scores such as ‘AAA’ or ‘B-’ . Moody’s, another well known credit rating agency, uses a slightly different format with Aaa and B3 . Refers to bonds within fixed income markets where the borrower is not a sovereign or government entity.

Hurdle Rate

Investors are given the right to “opt in” to (or “opt out” of) each investment opportunity that the manager of the fund presents. In an open-ended fund structure, funds can be raised at any time during the life of the fund and the fund has an indefinite term. Also known as the investment multiple, it is the ratio of the realized and unrealized fund/equity value divided by the capital invested in the fund/company. A legal provision that provides a buyer with the right to terminate an acquisition contract in case of an event that substantially impairs the value of the acquisition target.

Fund managers usually have the option to extend the fund’s term by two to three years, often in one year increments, at their discretion. A subscription agreement for an equity transaction should be accompanied by a signature page to the company’s governing documents (operating agreement,limited partnership agreement, shareholders agreement, etc.). In a debt offering, the subscription agreement should be accompanied by a promissory note. An investor questionnaire, which establishes an investor’s suitability and qualification to invest in the transaction, is typically included or integrated with the subscription agreement. Public Debt Real EstateOne of the four quadrants of the real estate capital markets. Typically refers to Commercial Mortgage Backed Securities and Residential Mortgage Backed Securities , but also can include public bond issues from public and private companies and agencies. Also see private equity real estate, public equity real estate and private debt real estate. FFO A ratio intended to highlight the amount of cash generated by a company’s real estate portfolio relative to its total operating cash flow.

Excess Return

It is separate from the coupon, which is the regular interest payment. A trade where a long position and a short position in two highly correlated securities are matched with the aim of profiting from any market condition. Securities that are not traded on a formal centralised exchange, eg. Companies/industries that provide essential goods such as utilities or consumer staples. Net exposure is calculated by subtracting the amount of the portfolio with short market exposure from the amount of the portfolio that is long. For example, if a portfolio is 100% long and 20% short, its net exposure is 80%. Gross exposure is calculated by combining the absolute value of both long and short positions.

The date on which the company is expecting to receive its next investment. The total amount raised during the selected period minus any downsized funds. MoneyTree results exclude non-US companies, non-cash investment, Buyouts and other forms of non-Venture Private Equity investments. Angel Investment and direct investment by corporations, unless they are co-investments in an otherwise qualifying round, are also excluded. The estimated amount of the equity portion of the investment made into the company at the round date. This amount includes any disclosed equity amounts as well as the estimated equity amounts.

Capital accounts are used in limited partnerships, LLCs and other flow-through, partnership based entities. Value-addedA phrase generally used by advisers and managers to describe investments in underperforming and/or undermanaged assets that possess upside potential. NOI and property value can be positively affected through a change in marketing, operating or leasing strategy; physical improvements; and/or a new capital structure. Placement agentA firm that acts as an intermediary between a fund manager seeking to raise capital and various investors who may be interested in investing in such a fund. Examples of such firms include Park Hill Real Estate, Probitas Partners, Park Madison Partners and Greenhill & Co. PerformanceThe quarterly changes in fund or account values attributable to investment income, realized or unrealized appreciation, and the total gross return to the investors both before and after investment management fees. Formulas for calculating performance information are varied, making comparisons difficult. Passive incomeIncome derived from business investments in which the individual is not actively involved, such as a real estate investment. Partial salesThe sale of an interest in real estate that is less than the whole property. This may include a sale of easement rights, parcel of land or retail pad, or a single building of a multi-building investment.

private equity glossary

Conversely, the majority of high-tech, typically Nasdaq-based stocks have a beta of greater than 1. Stocks with a beat of greater than 1 are believed to offer the possibility of a higher rate of return, but also require the investor to assume higher risk. Venture capital is a type of private equity where investors provide financing to startup companies and small businesses which they believe are positioned for long-term growth. As with other forms of private equity, venture capital firms have unique needs and need technology solutions designed specifically for their purposes. Allvue’s complete suite of back-, middle-, and front-office solutions for growing VCs offers everything private equity glossary a fund manager needs to run their operations and businesses successfully – regardless of size or strategy. Fund raising– The process by which a private equity firm solicits financial commitments from limited partners for a fund. Firms typically set a target when they begin raising the fund and ultimately announce that the fund has closed at such-and-such amount. But sometimes the firms will have multiple interim closings each time they have hit particular targets (first closings, second closings, etc.) and final closings. The term cap is the maximum amount of capital a firm will accept in its fund. Alternative assets – This term describes non-traditional asset classes.

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