chapter 8 questions I mess up Flashcards
Private debt
Capital extended to companies through a loan or other form of debt.
Real assets
Generally, these are tangible physical assets, such as real estate, infrastructure, and natural resources, but they also include such intangibles as patents, intellectual property, and goodwill. _____ generate current or expected future cash flows and/or are considered a store of value.
Infrastructure
A type of real asset that is intended for public use and provides essential services.
These assets are typically long-lived fixed assets, such as bridges and toll roads.
Public–private partnership (PPP)
An agreement between the public sector and the private sector to finance, build, and operate public infrastructure, such as hospitals and toll roads.
Concession agreement
A legal agreement in infrastructure investing that governs the investor’s obligations to construct and maintain infrastructure as well as the exclusive right to operate and earn fees for a pre-determined period.
Commodities
A product or service from a firm that is indistinguishable from products or services of competing firms, usually conforming to a common standard or grade imposed by convention or regulation.
Co-investing
In Co-investing, the investor invests in assets indirectly through the fund but also possesses rights (known as co-investment rights) to invest directly in the same assets. Through Co-investing, an investor is able to make an investment alongside a fund when the fund identifies deals.
Limited partnership agreement (LPA)
A legal document that outlines the rules of the partnership and establishes the framework that ultimately guides the fund’s operations throughout its life.
Master limited partnership (MLP)
Has similar features to limited partnerships but is usually a more liquid investment that is often publicly traded.
Carried interest
A performance fee (also referred to as an incentive fee, or carry) that is applied based on excess returns above a hurdle rate.
Commited capital
The amount that the limited partners have agreed to provide to the private equity fund.
High-water mark
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.
Clawback
A requirement that the general partner return any funds distributed as incentive fees until the limited partners have received their initial investment and a percentage of the total profit.
From the following options, identify the most important reason that investors in alternative funds compensate managers using a performance-based fee structure. To:
a) penalize managers for poor or declining performance over time
b) better align manager and investor incentives over longer periods
c) protect themselves from paying managers twice for the same returns
b) better align manager and investor incentives over longer periods
Investors in alternative funds usually compensate managers using a performance-based, versus flat, fee structure to better align manager and investor incentives over longer periods
Prime broker
A broker that provides services that commonly include custody, administration, lending, short borrowing, and trading.
Margin financing
A financing arrangement whereby the prime broker lends shares, bonds, or derivatives and the hedge fund (or investment manager) deposits cash or other collateral into a margin account at the prime broker based on certain fractions of the investment positions.
Gate
A provision that when implemented limits or restricts redemptions for a period of time.
Founders class shares
A way to entice early participation in startup funds whereby managers offer incentives that entitle investors to a lower fee structure and/or other favorable terms.
Either/or fee
A custom fee arrangement whereby major investors are offered a structure where managers agree to charge either a lower management fee or a higher incentive fee, whichever is greater.
portfolio companies
The individual companies owned by a private equity firm.
Mezzanine-stage financing
Mezzanine venture capital that prepares a company to go public as it continues to expand capacity and enhance its growth trajectory.
It represents the bridge financing needed to fund a private firm until it can execute an IPO or be sold.
PIPE (private investment in public equity)
A private offering to select investors with fewer disclosures and lower transaction costs that allows the issuer to raise capital more quickly and cost effectively.
