intro chap1 Flashcards
2 characteristics of PE
closed-end limited partnerships /“blind pool” vehicles
PE def
inv pool their capital in a fund to buy equity stacks from private companies
PE firm has two separate comp:
General Partner /Investment Manager
PE firm legal distinction with GP and inv manager :
T or F
true
Passive Investors?
they do not play an active role in the day-to-day operations or management of the private equity fund
Limited Liability ?
protects them from personal financial exposure beyond their investment.
A pension fund
provides retirement income.
which issue capital calls for LPs ?
GP
impact future fundraising
LPs
PE firm’s investment committee (IC),
A fund of PE funds
impact future dealmaking
portf comp
specific purpose vehicles
these SPVs serve as the GP for
only one fund to avoid cross-liabilities between related funds of the PE firm
hard cap
target fund
size from the outset
A fund holding
its first closing in 2016 is referred to as a
vintage 2016 fund
draws down
call
A fund’s uninvested committed capital is referred to as
dry powder
holding period … in the case of under-performing firms
longer
a fund’s GP works closely with portfolio companies’ management teams to
create value and prepare the company for exit . during which phase ?
holding period
holding period length
3 to 7 y
Investment Period length
4 to 5 y
Fundraising
12 to 18 months
quick flip
where an exit was achieved within 13–18 months of investing during the investment period / can reinv
net cash flow position
the total capital
invested along with fees paid to the PE firm minus the capital returned to the LP by
the GP
lowest point of a J-curve
is theoretically defined as
the fund’s total committed capital
The secondaries market nowadays offers
a realistic avenue to
add liquidity, shorten the J-curve and manage a PE portfolio
proactively.
As soon as the J-curve crosses the x-axis,
the fund has reached breakeven;
the final point on the J-curve represents
an LP’s total
net profit generated by the fund.
“2%”
refers to the management fee, which is an annual fee paid by Limited Partners (LPs) to the fund’s investment manager.
“20%”
represents the carried interest, also known as “carry.” This is a performance fee paid to the General Partner (GP) of the fund.
80%
generated by the fund is distributed pro rata to the fund’s Limited Partners.
2%) of
the total committed capital
20%) of the
net profits generated by the fund.
The net return,
which is the return on capital generated by the fund net of management fees and carried interest
first-time funds will charge … management fees
higher
Management fees accrue from … and are usually paid ….
a fund’s first closing onwards / either quarterly or semi-annually in advance.
Management fees are charged on .. during the investment period,
committed capital
Management fees are charged on … after the
investment period
net invested capital
An investment manager may charge additional fees to the fund, particularly
in the context of a …
control buyout.
monitoring fees for
advisory and consulting services provided to portfolio companies during the ..
holding period.
PE Fund Distribution Waterfall
1- Return of Invested Capital
2- Preferred Return or Hurdle Rate
3- Catch-Up Mechanism
4- split
5- Clawback Provision
Deal-by-Deal Carry
the GP receives carried interest only after investors have received:
Their invested capital from the specific deal in question.
A preferred return on the overall capital contributed.
A “make whole” payment to compensate for any losses incurred on prior deals.
All capital first
European-style waterfall
