Estimate of how much an asset would be worth if sold in the market today. If the asset is a traded asset, this is obtained by looking at the last traded price.

Investment Memorandum (im)

An acquisition of a firm by its own managers or a private entity, financed primarily with debt. Cash flows generated by the existing assets of a firm that are reinvested back into the firm. It is the difference between the cash flow a firm would have had without the new investment and the cash flow with the new investment. Like a forward private equity glossary contract, it is an agreement to buy or sell an underlying asset at a specified time in the future. However, it differs from a forward because it is usually traded, requires daily settlement of differences and has no default risk. Bond with a coupon rate that is reset each period, depending upon a specified market interest rate .

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. A lease that shares characteristics with both operating and capital leases. Combination of excess cash and limited project opportunities in a firm.

Securities Act Rule 144

So, for example, I might borrow $1million from you, but you tell me that I can only borrow a maximum of 10x my underlying profit. So, effectively, if my profit declines below $100,000 and I still have $1 million in debt, then you can take control of the company. Conversely, private equity glossary if my profit goes up to $500,000, then I am able to borrow up to $5 million . A company that owns several businesses, usually providing different services. Conglomerates tend to be large, multinational companies with a parent company that owns several subsidiaries.

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 private equity glossary priority in bankruptcy, and provides management control to the owner. Portfolios that yield the highest expected return for each level of risk .

Management Fee

Long term and tangible assets of the firm, such as plant, equipment, land and buildings. Risk that affects one or a few firms, and is thus risk that can be diversified away in a portfolio. any business large or small, privately private equity glossary 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.

Convertible Debt

It’s when one company is acquired by another against the wishes of the target’s board of directors and existing management. It is usually achieved by the acquiring company appealing directly to the target’s shareholders, who may vote in a new board of directors or otherwise take action to allow the takeover to go through.

Sortino Ratio is used to measure the level of risk in a portfolio. The higher the Sortino ratio, the better a portfolio has performed relative to the risk taken. It is often use to compare the risk take between different portfolios to achieve a certain return. A pure play is a company that invests its resources in only one line of business.

A portfolio with a beta less than 1 is less volatile than the market. Alpha is a measure of an investment’s performance compared to a benchmark, such as the S&P 500. A positive alpha of 1.0 means the fund or stock has outperformed its benchmark index by 1 percent. A similar negative alpha of 1.0 would indicate an underperformance of 1 percent.

The value to which a sum of money invested today, at today’s rates of return, will grow, at a given point in the future. For example, the future value, one year from today, of $100 invested today, at an interest rate of 6%, private equity glossary is $106. An investment contract that derives its value from the price movements of another instrument. For example, a stock option is a derivative that derives its value from the price movement of the reference stock.

Convertible Securities

Difference between the price paid to acquire a firm and the market price prior to the acquisition. The total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns. A company that offers its securities through an offering and now has those securities traded on the open market. Markets in which newly issued securities are sold to investors and the issuer receives the proceeds. The risk that principal repayment will occur earlier than scheduled, forcing the investor to reinvest at lower prevailing rates.

• The sum of capital commitments is equal to the size of the fund.Limited partnersand thegeneral partnermust make a capital commitment to participate in the fund.
• Capital commitment– Every investor in a private equity fund commits to investing a specified sum of money in the fund partnership over a specified period of time.
• The fund records this as the limited partnership’s capital commitment.
• Entering the world of private equity can be daunting if you aren’t familiar with the framework and terminology.
• An investment fund may be just what you are looking for to add to your portfolio wealth, either as a preferred or unlimited partner.
• Yet, the balanced investor knows how to assess risks vs returns and chooses the right equity investment that is best suited for their needs.

As such, this type of stock has a performance that correlates highly to the performance of the stock’s particular industry. For examples, many electronic retailers or “e-trailers” are pure plays. Compensation for the risk of loss relative to an investment’s fair value if an investment needs to be converted to cash quickly. Beta is a historic measure private equity glossary of a fund’s relative volatility, which is one of the measures of risk; a beta of 0.5 reflects half the market’s volatility using the S&P 500 as the benchmark. Compared to the S&P 500 and are calculated since inception of the Fund’s A-share. Beta is a measure of the volatility, or systematic risk, of a security in comparison to a benchmark.