Private Capital Markets

private equity glossary

Venture Partners, unlike Entrepreneurs in Residence, will usually source multiple deals for the firm over the course of their tenure. Common Fund was set up to pool and manage the assets from smaller college endowment funds. Independently wealthy individuals who invest their own money into startup companies, usually as part of a broader investment strategy. Of course, this dictionary is not a complete representative of all the words and phrases found in legal clauses, obscure securities laws, and terms of art. But we hope this resource serves as a springboard for founders, aspiring investors, journalists, a difference between commodity money and fiat money is that: and the merely curious to learn more. Every industry has a shared language that builds trust and understanding inside, yet, as a consequence, it also builds barriers around it. To anyone who’s curious, here’s a look inside the lingo of private equity. Because investors are paid first, sometimes there is a clause to ‘catch-up’ the Sponsor to full participation. Let’s use the example of $10M in profits from a 4 year investment of $4M and a Sponsor earning 20% promote with an 8% hurdle. Current yield- The amount that an investment pays out cash at regular intervals, typically from interest or lease payments.

Value stock – Typically an overlooked or underpriced company that is growing at slower rates. Top five holdings – Top five securities in a portfolio based on amount of invested assets. Standard & Poor’s Index – Broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks private equity glossary commonly known as the Standard & Poor’s 500 or S&P 500. Share – A unit of ownership in an investment, such as a share of a stock or a mutual fund. Reinvestment option – Refers to an arrangement under which a mutual fund will apply dividends or capital gains distributions for its shareholders toward the purchase of additional shares.

private equity glossary

Ratings – Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities. Price-to-book – The price per share of a stock divided by its book value per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of https://en.wikipedia.org/wiki/private equity glossary the stocks it holds. Portfolio allocation – Amount of assets in a portfolio specifically designated for a certain type of investment. P/B Ratio – The price per share of a stock divided by its book value per share. Number of Holdings – Total number of individual securities in a fund or portfolio. Loads (back-end, front-end and no-load) – Sales charges on mutual funds.

Inflation hedgeAn investment that tends to increase in value at a rate greater than inflation and helps contribute to the preservation of the purchasing power of a portfolio. FINRAThe Financial Industry Regulatory Authority – formerly the NASD and NYSE Member Regulation – is the largest non-governmental regulator for all securities firms doing business in the United States. 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. FFO multipleShare price of a REIT divided by its funds from operations. FAD multipleShare price of a REIT divided by its funds available for distribution. Exit strategyStrategy available to investors when they desire to liquidate all or part of their investment. Eminent domainA power to acquire by condemnation private property for public use in return for just compensation. The Electronic Data Gathering and Retrieval System The electronic filing system created by the Securities and Exchange Commission for the purpose of increasing efficiency and accessibility to corporate filings.

Price

A cash flow that occurs at regular interval and grows at a constant rate for a specified period of time. The difference between the market value of an acquired firm and the book value of its assets; arises only when purchase accounting is used in an acquisition. any business large or small, privately run or publicly traded, and engaged in any kind of operation – manufacturing, retail or service. Estimated value of a private firm in a year in which the owners plan to sell it to someone else or to take it public. Difference between the actual returns private equity glossary on an investment and the expected return, given market returns and investment’s risk. Any financing vehicle that has a residual claim on the firm, does not create a tax advantage from its payments, has an infinite life, does not have priority in bankruptcy, and provides management control to the owner. It is defined to be the difference between the return on capital and the cost of capital multiplied by the capital invested. Short-term assets of the firm, including inventory of both raw material and finished goods, receivables and cash.

The forms of credit enhancement most often employed are subordination, over-collateralization, reserve funds, corporate guarantees and letters of credit. Cost of CapitalThe cost of the funds employed as the result of an investment decision. Convertible preferred stockPreferred stock that is convertible to common stock under certain formulas and conditions specified by the issuer of the stock. Consumer price index Measures inflation in relation to the change in the price of goods and services purchased by a specified population during a base period of time. ComparablesUsed to determine the fair market lease rate or asking price, based on other properties with similar characteristics. Commercial real estateBuildings or land intended to generate a profit for investors, either from rental income or capital gain. Closed-end fundA commingled fund that has a targeted range of investor capital and a finite life. Capital appreciationThe change in market value of a property or portfolio adjusted for capital improvements and partial sales.

A specialized type of recapitalization in which a portfolio company takes on new debt in order to issue distributions to the owners. The act of returning capital back to limited partners following a liquidity event. A measure of the volume of private equity transactions that have closed in a given period. The main entity responsible for the issuance of new equity, debt, and other securities. They have less need for the protection provided by registration under securities law. An abbreviation for “simple agreement bch exchanges for future equity,” this financial instrument closely resembles a convertible note, except they are not a debt instrument. a digest of various methods investors use to place a valuation on early stage startup companies. The valuation placed on a company prior to any additional investment in its current financing round. “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.

private equity glossary

The strategy can focus on specific industries, size of investment, size of target companies, etc. A broad range of investments including mezzanine, distressed debt, energy or utilities, industry specific, and turnarounds. The IRR obtained by taking the cash flows from inception together with the residual value for each fund and aggregating them in a pool of cash flows. This calculation takes into account both the sized and the date of any investment and therefore makes it more accurate than a simple averaging of IRRs or the weighted average IRR . An agreement between the underwriter of stock and certain stockholders that the holders will refrain from selling their stock for a certain period. This prevents these holders from putting too much of the stock on the market and thereby diluting the stock price.

Stock

A back-end load is assessed at redemption , while a front-end load is paid at the time of purchase. Interest rate – The fixed amount of money that an issuer agrees to pay the bondholders. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength. Expense ratio – Amount, expressed as a percentage of total investment that shareholders pay annually for mutual fund operating expenses and management fees. EPS – The portion of a company’s profit allocated to each outstanding share of common stock. Daily dividend factor – Daily dividend distributed by a money binance google authenticator reset market mutual fund. Custodian – A bank that holds a mutual fund’s assets, settles all portfolio trades and collects most of the valuation data required to calculate a fund’s net asset value . Contingent deferred sales charge – A back-end sales charge imposed when shares are redeemed from a fund. Capital gains reinvest NAV – The difference between an asset’s purchase price and selling price that was automatically in vested in more shares of the security or mutual fund invested at the security’s net asset value. Breakpoint – The level of dollar investment in a mutual fund at which an investor becomes eligible for a discounted sales fee.

private equity glossary

When a company offers up new stock for sale to the public after an IPO. Often occurs when founders step down or desire to move into a lesser role within the company. Startups raise capital from VC firms in individual rounds, depending on the stage of the company. The first https://www.coindesk.com/harvard-yale-brown-endowments-have-been-buying-bitcoin-for-at-least-a-year-sources round is usually a Seed round followed by Series A, B, and C rounds if necessary. In rare cases rounds can go as far as Series F, as was the case with Box.net. It’s the method by which an investor and/or entrepreneur intends to “exit” their investment in a company.

Secondary Funds

The rate of return that the fund must achieve before the fund manager can get paid the carried interest. A vehicle for pooling capital with other partners to invest in underlying companies. As defined in Rule 501 of Regulation D promulgated under the 1933 Act. This Money Week video explains the meaning of private equity using simple language and easy-to-understand terms. Venture capitalists invest in startups – they buy in for an agreed amount of money in the hope of seeing their investment https://cointelegraph.com/news/human-rights-foundation-cso-urges-time-readers-not-to-demonize-bitcoin grow. Generally, debt is evidenced by a note, bond, mortgage or other instruments that states the repayment and interest provisions. Project payment dependent notes are special, limited debt obligations that are tied to the performance of a specific underlying real estate asset. The performance of each series of notes depends on the economic return of the corresponding real estate asset. For more on the topic, please review our article on the topic from our Learning Series.

  • Companies that do an IPO are often relatively small and new and are seeking equity capital to expand their businesses.
  • Secondary MarketThe market for the sale of partnership interests in private equity funds.
  • Alternative assets– This term describes non-traditional asset classes.
  • Alternative assets are generally more risky than traditional assets, but they should, in theory, generate higher returns for investors.
  • They include private equity, venture capital, hedge funds and real estate.
  • Sometimes limited partners chose to sell their interest in a partnership, typically to raise cash or because they cannot meet their obligation to invest more capital according to the takedown schedule.

The accounting approach used to show the income from ownership of securities in another firm, where it is a majority, active investment. The balance sheets of the two are merged and presented as one balance sheet. The income statements, likewise, represent the combined income statements of the two firms. Combination of excess cash and limited project opportunities in a firm. Option pricing model based upon the assumption that stock prices can move to only one of two levels at each point in time. Preferred stock where the preferred dividend rate is pegged to an external index, such as the treasury bond rate. Difference between the price paid to acquire a firm and the market price prior to the acquisition.

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Secondary marketA market where existing mortgage loans are securitized and then bought and sold to other investors. Road showA tour made by executives of a company that plans to go public, where they travel to various cities to meet with underwriters and analysts and make presentations regarding their company and IPO. The road show takes place during the marketing period before the registration statement becomes effective. Return on equityThe income available to common stockholders for the trailing 12 months divided by the average common equity, expressed as a percentage. ProgrammaticWhen a joint venture is formed to acquire multiple assets, some of which may not yet be identified. Multiple assets may be developed or acquired under a single joint venture agreement, or multiple assets may be developed or acquired under a series of joint ventures utilizing a uniform set of documents to create each JV.

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