Refers to the interest that has been earned but not yet paid or received on a debt instrument, such as a bond or loan. It represents the portion of interest that has accumulated over time since the last interest payment date. When a private equity firm acquires a company with outstanding debt, it may need to account for the accrued interest as part of the acquisition price or subsequent financial calculations.
The process of acquiring or purchasing a controlling stake in a company or business by a private equity firm. When a private equity firm undertakes an acquisition, it typically seeks to take a majority ownership position in the target company, which means acquiring 51% or more of its shares.
The process of distributing or assigning investment capital to specific funds, sectors, or investment opportunities within a private equity firm's portfolio.
Investment assets or strategies that fall outside the traditional categories of stocks, bonds, and cash. They encompass a broad range of non-traditional investment opportunities such as private equity, venture capital, hedge funds, real estate, commodities, infrastructure, and other non-publicly traded assets.
An individual who provides capital for startup companies, often in exchange for equity ownership.
The strategic distribution of investment capital across different asset classes within a private equity portfolio. It involves determining the optimal mix of investments in various asset categories, such as private equity funds, real estate, hedge funds, and other alternative investments.
The total value of assets that a private equity firm manages on behalf of its investors.
A type of investment fund where investors commit capital to a fund without having knowledge of the specific investments the fund will make. The term "blind" implies that investors are essentially investing in the fund based on trust in the fund manager's expertise and investment strategy.
Short-term financing provided to a company to bridge the gap between two financing rounds.
The acquisition of a controlling stake in a company by a private equity firm, typically involving a significant amount of debt financing
A Capitalization Table is a detailed record that outlines the ownership structure of a company, including the equity ownership stakes held by various investors, such as founders, employees, and investors. It provides a snapshot of the company's capital structure, indicating the percentage ownership and types of securities (e.g., common stock, preferred stock, options) held by each shareholder.
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A request made by a private equity firm to its investors for additional capital contributions to fund investments.
Refers to the contractual agreement made by an investor to contribute a specified amount of capital to an investment fund over a certain period.
A share of the profits earned by a private equity fund's general partners, typically calculated as a percentage of the fund's gains.
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The movement of money into and out of an investment or portfolio. It represents the actual cash generated by an investment or business over a specific period.
A contractual provision in a limited partnership agreement that allows the general partner (GP) to receive a larger share of profits after a certain threshold or hurdle rate has been achieved. The catch-up provision ensures that the GP receives a proportionate share of profits once the limited partners (LPs) have received their preferred return. It allows the GP to 'catch up' to a certain percentage of the profits before the remaining profits are distributed according to the agreed-upon profit-sharing ratio. This mechanism aligns the incentives of the GP and LPs, incentivizing the GP to maximize returns for the benefit of all parties involved.
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A provision in a limited partnership agreement that enables the general partner (GP) to recover previously distributed profits from limited partners (LPs) under certain circumstances. The clawback provision typically comes into effect when the GP has over-distributed profits, exceeding the LPs' actual entitlement based on the final investment performance.
The final stage of a transaction or deal where all the necessary legal, financial, and administrative processes are completed, and the investment or acquisition is officially concluded.
The return of capital and profits from an investment or fund to the investors or limited partners (LPs). It represents the cash or asset payments made by the private equity fund to its investors as a result of successful exits, such as initial public offerings (IPOs), mergers, or sales of portfolio companies.
The method used to allocate and distribute investment profits among various stakeholders, such as limited partners and general partners, in a fund or investment structure. The distribution waterfall outlines the order and priority in which cash flows are distributed. It typically consists of different tiers or layers that determine how profits are shared, taking into account factors such as preferred returns, hurdle rates, catch-up provisions, and carried interest. The distribution waterfall ensures a systematic and structured approach to distributing investment proceeds in accordance with the agreed-upon terms and priorities outlined in the fund's partnership agreement.
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Cash payments or distributions made by a portfolio company to its shareholders, which can include private equity firms and other investors. These dividends are typically a portion of the company's profits that are distributed periodically to the shareholders.
The process of accessing committed capital from investors by the general partner (GP) of a private equity fund. When a fund is established, investors commit to providing a certain amount of capital over a specified period. The GP then draws down or calls capital from the investors as needed to make investments or meet fund expenses. The drawdown process is typically structured with specific capital call notices and timing agreed upon in the fund's legal documentation. Drawdowns allow the GP to deploy capital into investments and manage the fund's operations effectively.
The available capital or uninvested funds that a private equity firm has at its disposal to make new investments. It represents the amount of capital that has been committed by limited partners (LPs) but has not yet been deployed into investments. Dry powder is an important metric as it indicates the firm's capacity to make acquisitions or investments in new opportunities.
The process of investigating and evaluating the financial, legal, and operational aspects of a company before making an investment.
Refers to a phase of investment focused on financing young, emerging companies in their initial growth stages. It typically involves providing capital to startups or businesses in the early stages of development, often before they generate significant revenue.
Stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to assess the operating performance and profitability of a company.
Refers to the ownership interest or shares held by investors in a company or fund.
The method of raising capital by selling ownership stakes or shares in a company to investors in exchange for investment funds.
The process of divesting or selling an investment made by a private equity firm. It represents the point at which the firm seeks to realize its investment and generate returns for its investors.
The total net profits or overall financial return generated by a private equity investment or fund at the end of its life cycle.
Refers to the initial closing of a private equity fund, during which the fund manager secures the first round of commitments from limited partners (LPs). It marks the point at which the fund manager can start deploying the raised capital into investments.
The process of taking a private company public by offering its shares for sale to the public on a stock exchange. It is also known as an initial public offering (IPO).
Fund of Funds (FoF)
An investment fund that invests in other private equity funds, rather than directly in companies.
The process of raising capital from investors for a private equity fund.
General Partner (GP)
The private equity firm or entity responsible for managing a private equity fund and making investment decisions.
A contractual provision in a limited partnership agreement that allows the general partner (GP) to receive a larger share of profits until a predetermined threshold is reached. The catch-up provision typically comes into effect after the limited partners (LPs) have received their preferred return.
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The total return generated by an investment or portfolio before deducting any fees, expenses, or taxes.
Investments made in established companies that have a proven track record and are looking to expand or grow.
The process of realizing the value of an investment or exiting from an investment by selling or divesting the investment.
High Net Worth Individual (HNWI)
An individual with a high net worth, typically considered a potential investor in private equity funds.
The length of time that a private equity firm holds an investment before exiting.
Refers to a specified minimum rate of return that an investment must achieve before the general partner (GP) can start receiving a share of profits. It is a threshold that the investment's performance needs to surpass to trigger the GP's participation in the profits. The hurdle rate is typically set in the limited partnership agreement and serves as a mechanism to align the interests of the limited partners (LPs) and the GP. Once the investment surpasses the hurdle rate, the GP may start receiving a predetermined percentage of profits, often referred to as the GP catch-up or carried interest.
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Initial Public Offering (IPO)
The first sale of a company's shares to the public, often as a means of exiting a private equity investment.
An entity that invests significant capital on behalf of other individuals or organizations. These investors are typically large financial institutions, such as pension funds, insurance companies, endowments, foundations, and sovereign wealth funds.
Internal Rate of Return (IRR)
A financial metric used to measure the profitability and performance of an investment over time. It represents the annualized rate of return that an investment is expected to generate based on its cash flows, including both cash inflows and outflows.
A predetermined time period during which a private equity fund is allowed to make new investments. It is a specified window of time, typically outlined in the fund's limited partnership agreement, during which the general partner (GP) can deploy the committed capital into various investment opportunities.
A graphical representation of the fund's cash flow pattern over time. It depicts the initial negative cash flow followed by a positive trend.
An individual, often specified in the limited partnership agreement, who plays a critical role in the management and decision-making of the private equity firm.
Leveraged Buyout (LBO)
The acquisition of a company using a significant amount of borrowed money, with the assets of the acquired company often serving as collateral.
Limited Partner (LP)
An investor in a private equity fund who provides capital but does not participate in the fund's day-to-day operations.
Limited Partnership Agreement (LPA)
A legally binding contract that outlines the terms and conditions of the partnership between the general partner (GP) and the limited partners (LPs). It governs the rights, responsibilities, and obligations of each party involved in the private equity fund. The LPA typically covers various aspects, including the investment strategy, capital commitments, profit sharing, management fees, governance structure, decision-making processes, reporting requirements, and terms for exiting investments. It serves as the foundation for the relationship between the GP and LPs, providing clarity on the fund's operations, investment objectives, and the rights and protections of the investors.
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The process of winding down and selling off the assets of a company or investment in order to convert them into cash.
Management Buyout (MBO)
The acquisition of a company by its existing management team, often with the support of a private equity firm.
A fee charged by the general partner (GP) to compensate for the costs of managing and overseeing the private equity fund.
The combination of two or more companies to form a single entity. It involves the consolidation of assets, operations, and ownership structures of the merging companies.
A form of financing that combines elements of debt and equity, often used in leveraged buyouts.
Net Asset Value (NAV)
The total value of a private equity fund's assets after deducting liabilities. It represents the net worth or equity of the fund. The NAV is typically calculated periodically, such as on a quarterly or annual basis, and is an important measure of the fund's financial health and performance.
The total return on investment generated by a private equity fund after accounting for all expenses, fees, and costs incurred during the investment period.
A type of investment fund that allows investors to buy and sell shares at any time, without any restrictions on the number of shares available.
The amount of committed but undeployed capital or uninvested commitments in a private equity fund. It represents the difference between the total capital commitments made by limited partners (LPs) and the capital actually invested by the general partner (GP) in portfolio companies.
A legally binding contract that establishes the terms and conditions of the partnership between the general partner (GP) and the limited partners (LPs).
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A financial intermediary or firm that assists private equity funds in raising capital from potential investors. The placement agent acts as a middleman between the fund managers (general partners) and institutional investors (limited partners).
A company in which a private equity fund has made an investment.
A form of investment that involves the acquisition and ownership of shares or equity in privately-held companies or assets. Private equity firms raise capital from institutional investors and high-net-worth individuals to form investment funds.
Refers to the segment of the financial market where investments are made in privately-held companies or assets that are not publicly traded on stock exchanges.
The periodic payments made by a private equity fund to its investors, typically in the form of cash or additional securities. These distributions are based on the fund's realized gains, such as profits from the sale of portfolio companies or other exit events.
The actual cash or value received by a private equity fund from the sale or liquidation of its investments.
Refers to the process of restructuring a company's capital and financial structure. It involves making changes to the company's debt and equity mix to improve its financial position, liquidity, or capital structure. Recapitalization can take various forms, such as raising new debt, issuing equity, refinancing existing debt, or repurchasing shares.
Return on Investment (ROI)
The measure of profitability and financial performance generated by an investment in a private equity fund.
Refers to a market where existing private equity investments are bought and sold between investors, rather than directly from the original fund or issuer. It allows investors to buy and sell their ownership interests in private equity funds or directly in private companies.
A financial instrument or investment contract that represents ownership, debt, or other rights in a company or asset. Securities can take various forms, such as shares of stock, limited partnership units, convertible bonds, or other equity or debt instruments.
The initial investment made to support the establishment and early-stage development of a new business or investment fund. It represents the capital provided by investors, often known as seed investors, to finance the initial expenses of a startup or the formation of a new private equity fund.
A form of financing that has a higher priority claim on the assets and cash flows of a company compared to other types of debt. It is usually provided by banks or institutional lenders and carries a lower risk compared to subordinated debt or equity.
A non-binding document that outlines the key terms and conditions of a proposed investment or transaction. It serves as a preliminary agreement between the investor (often a private equity firm) and the target company. The term sheet covers essential elements such as the investment amount, valuation, ownership structure, governance rights, exit provisions, and any other significant terms of the deal.
A method of calculating investment returns that accounts for the timing and duration of capital contributions and withdrawals.
The process of revitalizing and improving the performance of a struggling or underperforming company.
A privately held startup company with a valuation of $1 billion or more.
An investment that has not yet been sold or exited, and its value has not been realized in the form of cash proceeds.
Venture Capital (VC)
A form of private equity investment that focuses on early-stage, high-growth companies with significant growth potential.
The gradual acquisition of ownership or rights by an individual over a specified period of time, typically linked to their employment or participation in the company or fund.
The method used to distribute investment returns among different stakeholders in a fund or investment structure. The waterfall defines the order and priority in which profits are allocated and distributed. Typically, the waterfall calculation outlines a series of steps or tiers that determine how profits are distributed among limited partners (investors) and the general partner (private equity firm). It may include provisions such as the return of capital, preferred returns, catch-up provisions, and profit-sharing arrangements. The waterfall calculation ensures a systematic and fair distribution of profits based on the agreed-upon terms and priorities outlined in the fund's partnership agreement.
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The capital required to fund a company's day-to-day operations, including cash, inventory, and accounts receivable.
An increase or decrease in the valuation or book value of an investment or asset.
The return or income generated by an investment over a specific period, typically expressed as a percentage.
A portfolio company that is no longer actively managed or receives meaningful attention from its private equity sponsor. Zombies are typically underperforming or distressed companies that have not been able to achieve the desired financial results or attract a buyer or exit opportunity.