Alternative Investments: intro

Question 1

Clawback

Answer 1

A requirement that the general partner return any funds distributed as incentive fees until the limited partners have received back their initial investment and a % of the total profit

Question 2

Committed Capital

Answer 2

The amount that the limited partners have agreed to provide to the equity private fund

Question 3

Development Capital

Answer 3

Minority equity investments in more mature companies that are seeking capital to expand or restructure operations, enter new markets or finance major acquisitions

Question 4

Distressed investing

Answer 4

Investing in securities of companies in financial difficultly. Private equity funds that specialize in distressed investing typically buy the debt of mature companies in financial difficulty

Question 5

Drawdown

Answer 5

A percentage peak to trough reduction in net asset value

Question 6

Funds of Hedge Funds

Answer 6

Funds that hold a portfolio of hedge funds, more commonly shortened to funds of funds

Question 7

General Partner

Answer 7

The partner that runs the business and ultimately bears the unlimited liability for the business debt and obligation

Question 8

High-water Mark

Answer 8

The highest value, net of fees that a fund has reached in history. It reflects the highest cumulative return used to calculate an incentive fee

Question 9

Incentive fee

Answer 9

Fees paid to general partner from the limited partner(s) based on realized net profits

Question 10

Limited Partner

Answer 10

Partners with limited liability. limited partnerships in hedge and private equity funds are typically restricted to investors who are expected to understand and to be able to assume the risks associated with the investments

Question 11

Lockup period

Answer 11

The minimum holding period before investors are allowed to make withdrawals of redeem shares from a fund

Question 12

Management buy ins

Answer 12

Leveraged buyout in which the current management team is being replaced the acquiring team will be involved in managing the company

Question 13

Management Buy-Out

Answer 13

A leveraged buyout event in which a group of investors consisting primarily of the the companies existing management purchase at least controlling interest in its outstanding shares. At the extremes, they may purchase all shares and take the company private

Question 14

Management Fee

Answer 14

A fee based on assets under management or committed capital, as applicable

Question 15

Mezzanine Financing

Answer 15

Debt or preferred share with a relationship to common equity from a feature such as attached warrants or conversion options. Mezzanine financing is subordinate to both senior and high yield debt but is senior to equity. It is referred to as “mezzanine” because of its location on the balance sheet

Question 16

Notice period

Answer 16

The length of time (typically 30-90 days) in advance that investors may be required to notify a fund of their intent to redeem some or all of their investment

Question 17

Performance Fee

Answer 17

Fees paid to the general partner from the limited partner(s) based on realized net profits.

Question 18

Portfolio company

Answer 18

In private equity, the company in which the private equity fund is investing

Question 19

Prime brokers

Answer 19

Brokers that provide services that commonly include custody, administration, lending, short borrowing, and trading

Question 20

Redemptions

Answer 20

Withdrawals of funds by investors as allowed by the notice period and other terms in the partnership agreement

Question 21

Venture capital

Answer 21

Investments that provide “seed” or startup capital, early stage financing, or later-stage financing (including mezzanine stage financing) to companies that are in early development stages and require additional capital for expansions or preparation for an initial public offering