PRIVATE EQUITY GLOSSARY OF TERMS, UNIQUE DEFINITIONS AND EXPLANATIONS
Depending on the type of debt, it may be repaid or converted into equity. With certain exceptions, the Investment Advisers Act requires that firms compensated for advising others about securities investments register with the SEC and comply with regulations designed to protect investors. In addition, certain provisions of the Investment Advisers Act, such as anti-fraud prohibitions, also apply to investment advisers that are not registered with the SEC. Private Fund Adviser Exemption – it is an adviser solely to private funds that have less than $150 million in assets under management in the United States. AUM is the total value of assets for which an investment adviser provides certain kinds of investment advice. While methods of calculating AUM can vary, Form ADV provides details on how investment advisers are required to calculate regulatory assets under management. An equity investor that provides capital to start-ups or small companies. Typically, these companies have high growth potential but lack access to funding. The amount charged by private equity firms for company acquisition.
Comparison Between Venture Capital and Private Equity
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A prototype is generally used to evaluate a new product or feature with an end user to gather feedback and insight to inform your next move. A Proof of Concept is a realization of a certain method or idea in order to demonstrate its feasibility, or a demonstration in principle with the aim of verifying that some concept or theory has practical potential. A proof of concept is usually small and may or may not be complete. Growth Hacking is a relatively new field in marketing focused on growth.
Investors are given the right to “opt in” to (or “opt out” of) each investment opportunity that the manager of the fund presents. Net debt is arrived at by subtracting the value of a company’s liabilities from the value of its liquid assets. The main components of net debt are interest-bearing bank borrowings and cash. Which additional elements of debtlike liabilities and cash equivalents will be included in net debt is often the subject of intense negotiation.
- The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to optimize the risk/reward tradeoff based on the investors specific situation and goals.
- FlippingThe act of buying shares in an IPO and selling them immediately for a profit.
- An agreement to perform the obligations of a third party if that party defaults.
- Such investments typically involve relatively large amounts, but are more liquid and less risky, as the companies can be sold more quickly or floated on the stock exchange.
- Economic conditions determine which industries or sectors will produce a good return, and then attractive stocks are sought within those industries/sectors.
- At this point in the process you are knackered and really want an early night.
Net IRR is the performance that the investor experiences after all the fees have been paid. Typically, a private equity fund will operate for 10 years, with the option to extend a few more years if the need arises. Focuses primarily on stable, income producing properties, but also invests in some properties with growth potential. Core-Plus is often the most conservative strategy, distinguished by a lower risk, lower return potential. Distributions occur primarily after investment realizations but can also occur after other income events such as interest or dividend payments. Distributions are primarily made in cash, but can be made stock of the underlying investment. The amount of money that an investor commits to investing in the fund. The commitment will be made at the closing and the capital will be called by the fund as needed during the fund term.
An investment fund which does not charge any commission on the subscription or redemption of units. The net assets are the sum of the market values, minus liabilities and the anticipated liquidation taxes . Used to describe the value of a company’s assets less the value of their liabilities. Leading company which is the best in its sector in terms of environmental and social performance. The investment policy describes the approach taken to achieve the investment objective (stock selection, timing, cash holdings, etc.). A direct transfer of a parcel of stocks from one manager to another. Avoids the need to make sales and purchases and thus saves transaction costs.
Bond funds which invest in bonds issued by borrowers with lower credit ratings. Such bonds offer higher rates of interest, but at the same time there is also a higher risk of default, i.e. that interest payments will not be paid or that the face value will not be repaid. Exchange traded fund – a relatively new technique evolved from passive investment. Instead of buying a unit in a tracker fund, investors can “buy” an index in the form of units which are traded on a stock exchange.
Effective dateThe date on which a registration statement becomes effective and the sale of securities can commence. Current occupancyThe current leased portion of a building or property expressed as a percentage of its total area or units. CorporationA legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses and shields the underlying owners from unlimited liability. Convertible debtA mortgage position that gives the lender the option to convert to a partial or full ownership position in a property within a specified time period. Read more about value of dash here. CondemnationThe process of taking private property, without the consent of the owner, by a governmental agency for public use through the power of eminent domain. ComparablesUsed to determine the fair market lease rate or asking price, based on other properties with similar characteristics. Carrying chargesCosts incidental to property ownership that must be absorbed by the landlord during the initial lease-up of a building and thereafter during periods of vacancy. Capital appreciationThe change in market value of a property or portfolio adjusted for capital improvements and partial sales.
PME-S&P 500 A simulated cashflow for an investment in S&P 500 is generated corresponding to a private equity investment. PME-MSCI A simulated cashflow for an investment in MSCI is generated corresponding to a private equity investment. PME-Nasdaq A simulated cashflow for an investment in Nasdaq is generated corresponding to a private equity investment. Non-bank lending from institutional investors (e.g., funds and insurance companies). Includes direct lending, mezzanine, venture debt and distressed debt. 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.
LP co-investing- When a fund’s LP makes a passive minority investment alongside the fund, directly into a portfolio transaction, purchasing shares in an operating company that will be managed by the fund. Co-investment rights are often awarded to the LPs with the largest commitments as a way to build the relationship. LPs value these co-investments, which typically offer reduced or eliminated fees, as a way to blend down their average rate of fees to the fund. A type of private equity investment in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.
They offer investors participation in the company’s potential profits, but also the risk of losing all their investment if the company goes bankrupt. They may be in the form of interest distributions or dividend distributions . Credit spreadThe difference between the yield of a corporate bond and a government bond of the same life span. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value. Credit rating agencyA company that analyses the financial strength of issuers of fixed income securities and attaches a rating to their debt. Credit default swap An insurance-like contract that allows an investor to transfer the default risk of a bond to another investor. The buyer of the CDS pays regular premiums to the seller, who has to reimburse the buyer in the event of the underlying bond defaulting.
For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price. 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. Refers to bonds within fixed income markets where the borrower is not a sovereign or government entity. Typically, the https://www.beaxy.com/exchange/eth-usd/ borrower will be a company or an individual, and the borrowings will be in the form of bonds, loans or other fixed interest asset classes. The realization multiple is the sum of the return that a private equity fund is expected to receive from its investors. In exchange for these rights, preferred stock is usually sold at a premium to the price of common stock, based on the company’s valuation at the time of sale. Investor relations platform for funds, limited partners, and portfolio companies to connect, generate deep insights and drive sustainability and liquidity in global private markets.
What is a good net IRR?
What is a Good IRR For an Investment? Most venture capital firms aim for an IRR of 20% or higher. However, it's important to consider the length of a project when evaluating an IRR. Longer-term projects could result in more returns, even if the IRR is lower.
The glossary covers commercial real estate terms and financial market terms, as well as terms specific to the institutional real estate world. Find out what alternative investment funds are available for your clients. Early–stage investments in a project or company in which there is a substantial element of risk. The amount of money that has been called by the fund from investors.
Growth hacking uses digital marketing strategies specifically designed to build or expand your customer base. When you turn to growth hacking for your digital marketing strategy, you’re taking more “traditional” digital marketing strategies and using them in unique ways to captivate and grow your audience. They will typically be key influencers and active on social media. They will give you your most honest and sometimes overly direct feedback. If you can identify these people effectively and have them interacting with your start-up from an early stage, you can get lots of free exposure.
Today, it is most often used to describe any number of funds that cater only to accredited investors. Often set up as limited partnerships, hedge funds may use exotic investment strategies, and are much more loosely regulated than mutual funds, although recent government proposals would tighten oversight. A financial asset that does not categorise as a conventional investment such as stocks, bonds etc. Instead they are often complex in nature with a high degree of risk. In relation to private capital, real estate is an asset class made up of pooled investments in the property market. Unlike other types of private capital strategies, Real Estate managers need to track and report on metrics that are unique to their industry. Therefore, spreadsheets or other generic solutions that cannot address the accounting, deal tracking, and reporting needs specific to their industry often are not able to meet their needs. Allvue provides a fully-integrated suite of solutions to power everything Real Estate fund managers needs to support their growth. A limited partner, in the world of alternative investments, is the investor in a private capital fund.
As with other derivatives, swaps can be used to gain a desired exposure without trading in the underlying assets. Swap-based strategies are offered by some investment banks as potential solutions for reducing pension schemes’ risk relative to their liabilities. The price of units of ETFs and investment funds which are listed on the stock exchange or traded over the counter . For investment funds the issue and redemption prices of the units are determined by the management company on the basis of the net asset value. An investment fund that invests in securities and loan-stock rights that are traded on a stock exchange or on another regulated market open to the public. Investment funds which are neither securities funds nor real estate funds. The information ratio is a measure used to assess an investment fund, and refers to the excess return relative to the tracking error. It is calculated by dividing the fund’s return by the fund’s risk . The alpha measures the fund’s outperformance relative to its benchmark. The tracking error shows the volatility in deviations between the fund’s return and that of the benchmark, and is thus a measure of the fund’s risk.
The IRR is calculated as an annualized effective compounded rate of return, using monthly cash flows to and from investors, together with the residual value as a terminal cash flow to investors. The IR is therefore net, i.e. after deduction of all fees and carried interest. The write-down of a portfolio company’s holdings to a valuation of zero, in which case the private equity investors receive no proceeds from their investment and the investment is usually removed from the fund’s portfolio. Sortino Ratio Sortino Ratio measures the risk adjusted return of an investment. It is a modification of the Sharpe Ratio but only those returns falling below the target or required rate of return – the downside risk. It is calculated by dividing the excess return by Downside Deviation. Because the Sortino ratio focuses only on the negative deviation of a portfolio’s return from the mean, it is thought to give a better view of a portfolio’s risk-adjusted performance since positive volatility is a benefit. RVPI The residual balue to paid-in is the ratio of unrealized valuation to total invested (paid-in) capital.
While market prices may go up and down, the book cost remains the same. An investment management approach where a manager aims to beat the market through research, analysis and their own judgement. A tax matters partner is a person in a partnership designated to receive tax notifications from the Internal Revenue Service and is given the authority to enter into tax agreements on the behalf of the partnership. An operating agreement is the legal governing document for an LLC . This document specifies how ownership of the company is divided among the principals, voting issues, tax treatment, capital distribution and other important internal governance. The National Futures Association is a self-regulated organization established by theCommodities Futures Trading Commission to regulate the managed futures markets to ensure compliance with theCommodities Exchange Act. The NFA acts as a watchdog organization to prevent commodities investment fraud. The Intrastate exemption is available if an issuer will only be offeringsecuritiesin a single state. The exemption requires that the issuer be organized in the state it intends to offer its securities.
An investment fund with variable capital which can continually issue new units but which must also redeem the units issued upon request at their net asset value. Weighted average measurable change in the value of a bond portfolio in response to a one-percent change in reference interest rate. Bonds with higher duration have a greater price sensitivity to changes in interest rates. An investment fund which invests in bonds with a maturity of at least 5 years. With derivative instruments, greater returns can be earned with a comparatively low capital investment than with an investment in the actual underlying instrument. A document setting out the investment management contract between the fund manager and the client. Contains appropriate legal details and details of investment objectives and benchmarks agreed.
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Self-administered REITWhen members of the management are employees of the REIT or an entity having essentially the same economic ownership as the REIT. Seisen Possession of real property under claim of freehold estate. Risk managementA systematic approach to identifying and separating insurable risks from non-insurable risks, and evaluating the availability and costs of purchasing third-party insurance. RevPAR Total room revenue for the period divided by the average number of available rooms in a hospitality facility.
The rights and obligations of the contracting parties are defined in the prospectus and fund regulations. In particular, these documents contain guidelines governing investment policy, the use of earnings and the costs the fund and/or the investor have to bear. The buyer of an option acquires the right – but not the obligation – to buy or sell a specified amount of a certain underlying instrument at a predetermined price on or by a specified future date. The buyer pays the seller of the option a premium for this right. The fund assets calculated at market values less all liabilities.
Chapter 11 of the bankruptcy code deals with reorganization, which allows the debtor to remain in business and negotiate for a restructuring of debt. Asset-backed loanLoan, typically from a commercial bank, that is backed by asset collateral, often belonging to the entrepreneurial firm or the entrepreneur. Start-up capital and early stage capital provided to businesses engaged in technology development or life sciences research. This financial glossary of terms is intended to explain terms of particular relevance to Caspian Energy Inc. and its business.