The Ultimate Glossary of Terms for Dealmakers

Large cap stocks tend to be easily bought or sold in the market . Asset performance is often driven largely by cyclical factors tied to the state of the economy. Economies and markets are cyclical and the cycles can last from a few years to nearly a decade. Generally speaking, early cycle is when the economy transitions from recession to recovery; mid-cycle is when recovery picks up speed while in the late cycle growth slows, wages start to rise and inflation begins to pick up. At this stage, investors become invariably bullish believing that prices will continue to rise.

This form of compensation most closely aligns the interest of investors and Sponsors because Sponsors are only rewarded if a deal makes money. Every industry has its lingo and, to new investors, private equity can be a foreign mix of acronyms, legalese, and financial jargon. No two PE deals look alike, but there are some standard terms that go a long way to building understanding between everyone at the table. A fund that invests all its committed capital, but holds onto investments longer than normal to continue collecting management fees. When a private equity firm acquires all the shares of a public company, changing the company’s status from public to private.

Market Capitalization

When the operating manager or management team purchases the business or assets that they currently manage. Normally requires private equity and debt finance alongside a personal commitment. Managers become owners instead of employees and have greater control and potentially greater rewards as a result. In private equity, firms typically use their own assets as collateral to pay for a large portion (70-80%) of the purchase price. The investor who provides initial venture capital and anchors early financing rounds. The lead investor typically invests at least 10-15% of the round and often has the highest share of equity. Other investors have confidence in an investment if they trust the lead investor’s due diligence.

Carried interest becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate, if applicable. Capital GainsThe difference between an asset’s purchase price and selling price, when the selling price is greater. Long-term capital gains are taxed at a lower rate than ordinary income. Capital Available for InvestmentThe total dollar value of Capital Under Management less those resources that have already been invested by a private equity fund. In the case of Labour-sponsored Venture Capital Corporations, reserves required by statutes are not included in liquidity calculations.

Financial Accounting Standards Board FASB

Compare Narrow-Based Weighted Average ratchet and Chapter 2.9.4.d.ii of the Encyclopedia. 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. Means an initial public offering by the company of a size and price specified in the corporate charter. An IPO with $20 million in gross proceeds to the company and a price per share three times the price the investor paid for its stock is fairly typical for a Qualified IPO, but this varies from one deal to another. The right of investors to have shares included in a public offering the company plans to conduct for itself or another shareholder.

HurdleUse in its commonly accepted sense of a hurdle return, i.e., the lowest possible return which a particular investor will accept. However, also used specifically to describe a return which a GP has to at least equal before any carry is calculated or payable. This mechanism is commonly found in buyout and development capital funds, but rarely in venture funds. Holding PeriodThe amount of time an investor has held an investment. The period begins on the date of purchase and ends on the date of sale, and determines whether a gain or loss is considered short-term or long-term, for capital gains tax purposes.

Check the background of this Broker-Dealer and its registered investment professionals on FINRA’s BrokerCheck. Discover more opportunities and drive more prospect engagement. Level up your deal team with the most accurate data set available. Proprietary advantage is any competitive advantage that’s gained by using technology, data, or processes that are unique to and owned by the firm. A financial intermediary is a middleman that acts as the point of contact between two parties during a financial transaction. A founder is a person responsible for creating, establishing, and growing a startup company. They may not necessarily be the owner, hence the term founder-owned which is used to describe someone who is both a founding member and direct owner of a company. Also referred to as deal origination, deal sourcing is used by finance professionals to identify potential acquisition targets. The cumulative distribution function is a statistical formula that measures the likelihood that a given variable will be less than or equal to its independent variable.

Bottom-up selectionSelecting stocks based on the attractiveness of fundamental characteristics of companies, such as earnings growth or dividends. Benchmark The portfolio must replicate the securities contained in the benchmark and their weights. Depending on the fund’s mandate, the managers can replicate the positions directly or via derivatives, which are instruments whose value is derived from that of an underlying security or pool of securities. Bear marketA market in which the prices of securities are falling and widespread pessimism often causes the negative sentiment to be self-sustaining. Typically, a security or index enters a bear market after a peak-to-trough decline of 20%. Asset-backed securitiesBonds backed by assets that produce cashflows, such as mortgage loans, credit card receivables and auto loans. Ownership of a corporation represented by shares that are claims against the corporation’s net earnings and assets. Other fees represent investment related expenses such as the administrative costs of a fund. Categories of investments that share certain characteristics and exhibit similar patterns of return.

Assets Under Management AUM

LeverageWhen referring to a company, leverage is the level of a company’s debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to a fund that borrows money or uses derivatives to magnify an investment position. ExposureThe proportion of a fund invested in a particular share/fixed income security/index, sector/region, usually expressed as a percentage of the overall fund. EpisodeA period of time during which investors’ emotions affect their decision-making more than they usually do. DurationA measure of the sensitivity of a fixed income security or bond fund to changes in interest rates. The longer a bond or bond fund’s duration, the more sensitive it is to interest rate movements. DiversificationThe practice of investing in a variety of assets, which typically should perform independently of each other. This is a risk management technique where, in a well-diversified portfolio, a loss from an individual holding should be offset by gains in other holdings, thereby lessening the impact on the overall portfolio. An asset that cannot be easily converted into cash such as real estate, thinly traded securities, and any investments that require a long time to mature .

Proportion of profits converted into cash flow (typically operating cash flow/operating profit). Acquisition of a corporate division, business unit or subsidiary and conversion into a standalone company. A single, lump sum repayment of the entire principal of a loan and accrued interest at the end of its term. Risk of https://www.beaxy.com/faq/beaxys-guide-to-sending-wire-transactions/ management pursuing their own interests instead of shareholders . A plan that outlines clearly the changes to be achieved by a company during the first three months post-investment. Subordinated debt obligations that will be paid, in the event of insolvency , only after satisfaction of other creditors of an issuer.

DCF is commonly used on mature companies with a history of cash flows, but is not generally used to value early stage startups. Voluntary RedemptionThe right of a company to repurchase some or all of an investors’ outstanding shares at a stated price at a given time in the future. The purchase price is usually the Issue Price, increased by Cumulative Dividends. Venture Capital FinancingAn investment in a startup business that is perceived to have excellent growth prospects but does not have access to capital markets. Type of financing sought by early-stage companies seeking to grow rapidly. Valuation PolicyThe method or guidelines used by a private equity fund to determine the value of its portfolio assets.

• When there is a series of closings, the first closing is known as the “initial closing” or “first close” and the final closing is known as the “final closing.”
• When an investor rolls up their sleeves and opts to directly own shares in an operating company, without the fund structure in between.
• Russell Wild is a finance and investing writer with more than 300 articles in major national magazines, including AARP The Magazine, Consumer Reports, Details, The Huffington Post, Kiplinger’s, Maxim and Men’s Journal.
• The burn rate is usually expressed on a monthly or weekly basis.
• Interest withholding is a type of collection tax which may be partly or wholly reclaimed by taxpayers by declaring it in their income tax assessments.

Types of institutional investors include sovereign wealth funds, public and private pension funds, corporations, insurance companies, foundations and endowments. Read more about bitcoin to usd converter by date here. This can occur if the GP starts fundraising for its next fund while it is still investing its current fund, and the fundraising process goes much faster than anticipated. The GP will close on the new fund, but will wait to have a capital call on the new fund until it has completed its initial investments in the current fund. A distribution waterfall refers to the allocation and priority of payments made to the general partner and the limited partners in a private equity fund when a cash distribution is made.

TitleThe means whereby the owner has the just and full possession of real property. Tenant at willOne who holds possession of premises by permission of the owner or landlord. The characteristics of the lease are an uncertain duration and the right of either party to terminate on proper notice. SurveyThe process by which a parcel is measured and its boundaries and contents ascertained. Subordinated classesWith regard to CMBS, describes those classes with the lowest priority to receive payments from the underlying mortgage loans. SlabThe exposed wearing surface laid over the structural support beams of a building to form the floor of the building. SetbackThe distance from a curb, property line or other reference point, within which building is prohibited.

Capital at riskThe risk an investor faces that he or she may lose all or part of the assets invested. Asset allocationAllocating a portfolio’s assets according to risk tolerance and investment goals. Absolute returnThe rise or fall in the value of an asset in a particular period of time, expressed as a percentage. A measure of the ease and relative time in which assets can be turned into cash without an impact on the price.

Derivatives may be traded on a regulated exchange or directly between two parties . CapitalRefers to the financial assets, or resources, that a company has to fund its business operations. Bull marketA market characterised by investor optimism and confidence in continuing strong returns, in which the prices of securities are rising. Benchmark A benchmark, such as an index or sector, which the fund managers aim to match or exceed. The managers have freedom in choosing the securities and strategy by which they do so. It describes the variation of price of a financial instrument over time. As related to private equity, special situations are distressed credit opportunities, mezzanine capital, credit opportunities, and secondary funds.

Private debt is one of the fastest growing alternative asset classes. Because of this, many private debt investment managers find themselves quickly outgrowing legacy technology tools and lacking the infrastructure needed to scale. Allvue offers a full suite of private debt tools that boost efficiency, transparency, and decision making by supporting the entire credit investment lifecycle. When used in reference to private capital, corporate accounting, also known as management company accounting, is the management of a GP’s own financials. Allvue’s Corporate Accounting solution is designed specifically for private capital markets, allowing GPs get complete A/R and A/P functionality, invoicing, bill pay, budgeting, financial statement reporting and more. Commercial banks are financial institutions offering a broad range of services. Given the wide range of services commercial banks provide, they often require specialized technology tools to meet their needs.

Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an initial public offering or sale to a public company. Alternative assets (or “alternative investments”) are those which are not one of the traditional asset classes of cash, public equities and bonds. Alternative assets can include hedge funds, commodities, real estate, derivatives and private equity . Alternative assets are generally riskier than traditional assets, but also have the potential to provide greater returns for investors. Seed money usually takes the structure of a loan or an investment in preferred stock or convertible bonds, although sometimes it is common stock. Seed money provides startup companies with the capital required for their initial development and growth.