private equity glossary

Automatic conversionImmediate conversion of an investor’s priority shares to ordinary shares at the time of a company’s underwriting before an offering of its stock on an exchange. ArchangelUsually an outsider hired by a syndicate of angel investors to perform due diligence on investment opportunities and coordinate allotment of investment duties among members. LP – Limited Partner LPA – Limited Partnership Agreement LS – Life sciences. A fund that invests all its committed capital, but holds onto investments longer than normal to continue collecting management fees. When investment banks issue debt and equity securities on behalf of corporations and governments to generate investment capital. The amount private equity firms charge the companies they acquire (typically between 1% and 2%). A state-owned investment fund designed to protect and/or grow a range of financial assets, including stocks, bonds and natural resources.

private equity glossary

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. Total assetsThe sum of all gross investments, cash and equivalents, receivables, and other assets presented on the balance sheet. Risk-adjusted rate of returnUsed to identify investment alternatives that can be expected to deliver a positive premium, after taking into private equity glossary consideration the expected volatility. The risk-adjusted rate of return is defined as the expected rate of return of a given asset, less the expected return for T-bills, divided by the expected standard deviation of the returns for the assets. 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.

, a Public-Private Partnership is a contractual agreement between a public agency and a private sector entity. Through this agreement, the skills and assets of each sector are shared in delivering a service or facility for the use of the general public. Each party shares in the risks and rewards potential in the delivery of the service and/or facility. Private REITAn infinite- or finite-life real estate investment nrg coin company structured as a real estate investment trust. Shares are placed and held privately rather than sold and traded publicly. 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.

Mezzanine Financing

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. Fully diluted sharesThe number of shares of common stock that would be outstanding if all convertible securities were converted to common shares. FoundationA foundation is a nonprofit organization that raises money and invests it to generate income to fund its charitable efforts or donate funds to support other charitable causes. Foundations are often discord disable email notifications created by a large single primary donation from an individual or business. Examples include Bill and Melinda Gates Foundation, The Carnegie Foundation and The Ford Foundation. Flat feeA fee paid to an adviser or manager for managing a portfolio of real estate assets, typically stated as a flat percentage of gross asset value, net asset value or invested capital. 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.

Limited partner LP Multiple investors in a limited partnership, as distinct from the general partner, who manages the investment. It is expressed as a percentage rate over a period of time property. Capital Stack All of the invested capital combined in the project is known as the capital stack. Highest risk and higher return investments at the top, and lower risk and lower return investments at the bottom of the stack. Bridge Financing Short term capital provided by investors until the next round of capital raise. Commonly structured as convertible debt or as Simple Agreements for Future Equity -SAFE. Guarantee of a fixed price offered by an investment banker in a public offering of securities.

Computed as the change in income divided by the change in equity or capital invested. The investor or investors most likely to be involved in the next trade on the securities issued by a firm. Securities that share some characteristics with debt and some with equity. Cash flows raised outside the firm whether from private sources or from financial markets.

private equity glossary

FFO is equal to net income, excluding gains from debt restructuring and sales of property, plus depreciation and amortization. ERISA Legislation passed in 1974 and administered by the Department of Labor that controls the investment activities primarily of corporate and union pension plans. Equity Market CapitalizationThe market value of all outstanding common stock of a company. EquitizationThe process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided amongst numerous investors and characterized in the form of publicly-traded securities. 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.

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The final period of venture capital investment , when companies have increased revenue and are near exit. The rate at which the net present value of all cash flows from an investment will equal zero. The period of venture capital investment between seed and late stage deals, when companies have a proven concept and little revenue. A temporary, limited amount of financing that serves as a ‘bridge’ until a long-term debt or equity investment can be secured. Mezzanine Loan Mezzanine loans rank above equity loans in the capital stack and below the bank or senior debt.

  • That is, private equity involves investing in privately held companies.
  • Additionally, investors may receive illiquid and/or restricted stock that may be subject to holding period requirements and/or liquidity concerns.
  • In the most sensible investment strategy for start-up investing, start-ups should only be part of your overall investment portfolio.
  • Investments in startups are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
  • There is no guarantee that the stated valuation and other terms are accurate or in agreement with the market or industry valuations.
  • Further, the start-up portion of your portfolio may include a balanced portfolio of different start-ups.

Difference between the actual return on an investment and the expected return, given market returns and stock’s risk, cumulated over a period surrounding an event . Preferred stock that can be converted into common equity, at the discretion of the preferred stockholder. Securities where holders receive the right to sell the shares in the firm at a fixed price in the future; it is a long term put option on the equity of the firm. Cash flows generated by the asset for both the equity investor and the lender. This cash flow is before debt payments but after operating expenses and taxes. The late stage involves established entities looking for high levels of funding to support significant strategic initiatives. So the company is able to get a couple of rounds of financing, they need to have a proven profitable record. The product generated by the company should also have excellent traction in the market. The funds involved in the seed stage are relatively low and the business is typically not more than an idea or concept versus a working good or product.

MRIs are not an official IRS designation and are conventionally distinguished through the explicit advancing of the foundation’s mission and programmatic goals. ESG may be referred to as “ESG investments” or “Responsible investing.” Investments and projections and other forward-looking statements contained on the EQUITYMULTIPLE platform are not assurances of the future results of your investment. Moreover, neither the issuer nor any other person or entity assumes responsibility for the accuracy and completeness of forward-looking statements. No person or entity is under any duty to update any of the forward-looking statements private equity glossary to conform them to actual results. Potential investors are advised to consult with their tax, legal and financial advisors prior to making any investment. 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. A prepayment penalty, also known as a prepay, is a common term between a borrower and a bank or other lender that regulates the borrower’s ability to pay their debt ahead of the pre-agreed schedule.

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The ability of the country to pay back that money becomes the main risk for investors. Almost all governments borrow money to fund their operations (e.g. borrowing money to build a bridge; it then pays the interest with tax income). The central bank in each currency area (e.g. the US, the eurozone) acts essentially as the “bank for the banks” – i.e. Essentially, because of this relationship, the central bank can set the basic “target interest rate” .

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 equity glossary Islands. The complexity of a securities offering requires an issuer or fund sponsor to be familiar with key securities law terminology. The glossary below contains definitions and explanations of some of the more commonly used terms used in a private securities transaction or fund formation.

private equity glossary

Company may want rights to force a conversion upon an IPO; upon hitting of certain sales or earnings’ targets, or upon a majority or supermajority vote of the preferred stock. Committed CapitalThe total dollar amount of capital pledged to a private equity fund. ClosingAn investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation. Capital CommitmentResources flowing from individual, institutional and other external sources to private equity funds. Balanced FundA private equity fund strategy whereby a wide range of investment targets is pursued, as distinct from a Specialized Fund.

Successor Funds

Portfolio managementThe portfolio management process involves formulating, modifying and implementing a real estate investment strategy in light of an investor’s broader overall investment objectives. It also can be defined as the management of several properties owned by a single entity. Non-discretionary fundsFunds allocated to an investment manager requiring the investor’s approval on each transaction. Net investment incomeThe income or loss of a portfolio or entity resulting after deducting all expenses, including portfolio xsn and asset management fees, but before realized and unrealized gains and losses on investments. Negative amortizationThe accrual feature found in numerous participating debt structures that allows an investor to pay, for an initial period of time, an interest rate below the contract rate stated in loan documents. Money Market Market for short-term debt securities with maturity of one year or less. Money Market securities can be Certificates of Deposit, U.S. T-bills, and municipal notes and are highly liquid investments.