What Is Private Equity? Definition And Meaning

BVI has recently gained the reputation as being a cost-effective and convenient jurisdiction. BVI’s regulatory structure has sought to create a flexible jurisdiction with streamlined processes and strong legal certainty. BVI’s regulatory filing fees are considerably lower than those of the Cayman Islands. A Broker-dealer is an individual or firm that purchases or sellssecuritiesfor itself or on behalf of others, often acting as aplacement agent. Broker-dealers must be registered with FINRA and are subject to extensive regulation. Only registered broker-dealers are permitted accept commissions or othertransaction-based compensationfor making capital introductions.
A fund designed to allow eligible investors to receive income from property investments tax efficiently. Initial public offering; when shares in a private company are offered to the public for the first time. For example, in the US the S&P 500 Index indicates the performance of the largest 500 US companies’ shares, and is a common benchmark for equity funds investing in the region. Each index has its own calculation method, usually expressed as a change from a base value. Growth investors search for companies they believe have strong growth potential. Their earnings are expected to grow at an above-average rate compared to the rest of the market, and therefore there is an expectation that their share prices will increase in value. A financial instrument for which the price is derived from one or more underlying assets, such as shares, bonds, commodities or currencies. Instead, it allows investors to take advantage of price movements in the asset. A form of derivative between two parties, designed to transfer the credit risk of a bond. In return, the seller agrees to pay off the underlying debt if there is a default on the bond.

A house, a patent, a factory, or a checking account may all be assets. Assets that are held solely or primarily in order to earn a return are investments. Thus, an automobile owned for the purpose of providing personal transportation to its owner is an asset, while an automobile owned for the purpose of providing transportation to paying clients (e.g., a taxi) is an investment. The return private equity glossary that, if earned consistently during the measurement period, would equate the starting value and the ending value. For example, an investor investing $1 million, who earns -20% in Year 1 and +50% in Year 2, will have an investment valued at $1.2 million at the end of Year 2. The same $1.2 million at the end of Year 2 would be earned by a return of 9.54% in each of the two years.

Market, As In the Market

An analysis of a target company that accounts for all one-off or non-recurring items to determine how working capital normally operates. A financing round between senior and subordinated loans that typically includes equity-based options in the form of warrants. The distribution of profits or responsibilities for the repayment of loans to ensure a minimum amount of taxes are paid to preserve deal value when structuring a deal that involves several companies. A commonly accepted way to measure concentration within an industry, which the US Department of Justice uses to review deals for anti-trust considerations. It is calculated by finding the square of the market share for each firm competing in a market and adding up the results, which can range from near zero to 10,000. A fund that never closes and keeps fundraising to ensure consistent cash flows. A general partner’s share of the capital gains from a fund, usually 20%. How long it takes a company to spend the capital it received from investors. A fee paid by the seller if it breaches or decides to terminate a definitive acquisition agreement.
private equity glossary
Real rate of returnYield to investors net of an inflationary factor. The formula for calculating the real rate of return is [(1 + nominal yield) / (1 + inflation rate)] – 1. Preferred sharesStocks that have prior claim on distributions (and/or assets in the event of dissolution) up to a definite amount before the common shareholders are entitled to anything. As a form of ownership, preferred shareholders fall behind all creditors in dissolutions. Open-end fundA commingled fund that does not have a finite life, continually accepts new investor capital and makes new property investments. A corporation responsible for listing securities, setting policies and supervising the stock exchange and its member activities.

Money Supply

The collective term for all fees and expense contributing to the difference between Gross and Net returns. Also known as Drawdown, Cash Invested, Cash In, Funded, Capital In, Capital Call. If someone’s building a Startup or ramping up on the Investment and business world, chances are they are always out of time. Here we collate a Startup Vocabulary, Venture Capital Glossary, and Business Jargon to get you up to speed about the ecosystem. Structures that are built around a partner receiving percentage interest in relation to retained earnings. Conglomerate direct investment- when an existing company in one country adds an unrelated business operation in a foreign country. It is the use of small contributions of capital from a large number of individuals to finance a project or venture. Most people are probably familiar with the concept of crowdfunding thanks to the success of platforms like Kickstarter, GoFundMe, Indiegogo, or Patreon.

  • The total market value of the assets controlled by a fund, including the value of investments as well as uninvested capital.
  • This usually occurs when a fund has agreed a preferred return to investors – a fund may return the cost of investment, plus some other profits, to investors early.
  • Fund of Funds – these are larger institutional platforms that invest in many different funds.

Examples include congregate care facilities, self-storage facilities, mobile homes, timber, agriculture and parking lots. Adjusted funds from operations A measure of REIT performance or ability to pay dividends used by many analysts with concerns about quality of earnings as measured by funds from operations . The most common adjustment to FFO is an estimate of certain recurring capital expenditures needed to keep the property portfolio competitive in its marketplace. Ad valoremMeaning “according to value,” this is a tax imposed on the value of property that is typically based on the local government’s valuation of the property.

These Old Programming Languages Are Still Critical To Big Companies But Nobody Wants To Learn Them

In structuring a private equity transaction, the use of a preferred stock with liquidation preference or other clauses that guarantee a fixed payment in the future can potentially create adverse tax consequences. Management Buyout FinancingCapital provided to facilitate the takeover of all or part of a business entity by a team of managers. A private equity firm will often provide financing to enable current operating management to acquire private equity glossary or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. 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 Partner ClawbackThis is a common term of the private equity partnership agreement.
Core assets tend to be built within the past five years or recently renovated. They are substantially leased with higher-credit tenants and well-structured long-term leases with the majority fairly early in the term of the lease. Core assets generate good, stable income that, together with potential appreciation, is expected to generate total returns in the 10 percent to 12 percent range. Cash-on-cash yieldThe relationship, expressed as a percentage, between the net cash flow of a property and the average amount of invested capital during an operating year. Appreciation returnThe portion of the total return generated by the change in the value of the real estate assets during the current quarter, as measured by both appraisals and sales of assets. AppraisalAn estimate of a property’s fair market value that is typically based on replacement cost, discounted cash flow analysis and/or comparable sales price.

CPCThe Capital Pool Company program is a corporate finance tool for emerging companies offered through the TSX Venture Exchange. The CPC Program pairs an eligible private company with a public Capital Pool Company which serves as the vehicle for taking the private company public. Conversion RatioThe number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price. Commitment PeriodThe period of time within which the fund can make investments as established in the LPA for the fund. Call OptionThe right to buy a security at a given price within a specific time period.

Glossary Of Terms

The main entity responsible for the issuance of new equity, debt and other securities. In the US, these regulators include, but are not limited to, the Federal Trade Commission and Department of Justice. Vintage Year ReturnsVintage year returns show the compound return of all constituent funds formed during the vintave year, from the vintage year to the date specified. Time Value of MoneyThe basic principle that money can earn interest, therefore something that is worth $1 today will be worth more in the future if invested. Tender OfferAn offer to purchase stock made directly to the shareholders. Typically, shell corporations are designed for the purpose of going public and later acquiring existing businesses. Revlon DutiesThe legal principle that actions, such as anti-takeover measures, that promote the value of an auction process are allowable, whereas those that thwart the value of an auction process are not allowed. The duty is triggered when a company is in play as a target acquisition. Reported/Remaining ValueThe current fair stated value for each of the investments, as reported by the General Partner of the fund.

It is calculated by dividing the cumulative distributions by paid-in capital. The realization multiple, in conjunction with the investment multiple, gives a potential private equity investor insight into how much of the fund’s return has actually been “realized” or paid out to investors. The first year that the private equity fund draws down or calls committed capital is known as the fund’s vintage year. The amount of paid-in capital that has actually been invested in the fund’s portfolio companies is simply referred to as invested capital. A fund investment strategy involving the acquisition of a product or business, from either a public or private company, utilizing a significant amount of debt and little or no equity. The first round of financing following a company’s startup phase that involves an institutional venture capital fund. The round is usually a step up in valuation, total size and per share price for companies’ whose product are either in development or commercially available.

Deed of trustAn instrument used in place of a mortgage by which real property is transferred to a trustee to secure repayment of a debt. DeedA legal instrument transferring title to real property from the seller to the buyer upon the sale of such property. Deal structureWith regard to the financing of an acquisition, deals can be unleveraged, leveraged, traditional debt, participating debt, participating/convertible debt or joint ventures. CovenantA written agreement inserted into deeds or other legal instruments stipulating performance or non-performance of certain acts, or use or non-use of a property and/or land. Common area maintenanceRent charged to the tenant in addition to the base rent to maintain the common areas. Examples include snow removal, outdoor lighting, parking lot sweeping, insurance, property taxes, etc.

The total return from the beginning of the year selected to the date selected. The total return from the beginning of the quarter selected to the date selected. The total return from the previous trading day to the selected date. The total return from the beginning of the month selected to the date selected. The annual return of a company, including appreciation and dividends or interest. The sum of all expenses related to operations, i.e., the expenses incurred in providing the goods and services included in revenue. A calculation of the rate of returns between two or more periods and multiplying those returns together geometrically, then taking a geometric mean of the result. Purchase of shares/stock in a company from an existing shareholder rather than purchasing the stock directly from the company. A company undergoes shareholders’ leveraged recapitalization in which the company issues a special one-time dividend allowing shareholders to retain an equity interest in the company. Indicates whether a company is currently owned or backed by a particular fund.
A kind of financial instrument that, under certain conditions specified in the investment agreement, converts from a debt owed to the investor to equity in the company owned by the investor. The option to buy shares of stock issued directly by the company at a certain price at some point in the future. CalPERS, one of California’s biggest pension funds, and a major investor in venture capital, published a handy slide deck with examples of carried interest calculations. The annual fee the venture fund charges for its management services, typically 2% of assets under management, but there is some variation. The period in which the fund deploys the majority of its capital into its portfolio companies, which is typically somewhere between three and five years. Independently wealthy individuals who invest their own money into startup companies, usually as part of a broader investment strategy. Most offering documents allow the management team to negotiate special terms that are not applicable to other investors.
private equity glossary
An agreement between two or more parties providing that funds, property or documents be placed with a third party for safekeeping, pending the fulfillment of specified conditions. The Adjusted Tax Basis is the proportionate value of an asset or security after adjusting for any deductions taken on, or capital improvements to the asset or security. Adjustable-Rate Mortgages are mortgages whose interest rates vary according to some benchmark. Generally, the loan starts with a fixed rate for a period, then moves to one where the rate is adjusted every month. Negotiated level of seller’s net working capital expected at closing of a transaction. Typically the average net working capital amount over a period of 12 months. Hybrid loan structure combining senior debt & subordinated debt into one loan with a blended interest rate. One of a number of related securities offered as part of the same transaction. Debt w/ a security interest and liquidation preference behind senior debt.
Use the definitions to aid learning and help you understand how the industry operates. A private-equity fund’s ultimate goal is to sell or exit its investments in portfolio companies for a return, known as internal rate of return in excess of the price paid. Short term debt that is eventually converted into equity in a given enterprise, be it in the form of preferred stock or partial ownership. Capital gains are gains received over the original purchase price of a given asset. Liquidation Preference – these provisions help insure that a VC gets paid first in relation to their investments. Leveraged buyout – acquiring a company with mostly debt and a little bit of equity. The debt is secured by the assets of the business doing the acquiring. They use their own collateral for the loan in the hopes that future cash flow will cover the loan payments. Refers to a company’s stock currently held by all of its shareholders, including shares held by institutional investors and restricted shares owned by a company’s executives. This number is used to calculate key metrics such as a company’s market capitalization, earnings per share, and cash flow per share.