Lecture 18 Flashcards
What’s the basic equation?
Capital + talents & ideas = venture
who is a general partner in a PE firm?
The Private Equity Firm itself
who’s the limited partners?
investors (pensions, sovereign wealth funds, FOF, insurance companies, endowments, foundations, high net worths
Who makes up private equity fund itself?
PE firm and limited partners
what are two aspects of VC?
Investments in early stage companies; account for a majority of investments by number of deals
what is the committed capital of a fund?
total amount of capital promised by LP’s over lifetime of fund
when is a fund said to be closed?
when the GP has raised the full amount of committed capital and is ready to start investing
what is the investment period or commitment period?
typical fund will invest in portfolio companies and drawn down capital over its first five years; after investment period is over, can make follow-on investments in current portfolio companies
what does a PE firm serve as to a fund?
General Partner to a PE fund(s)
Define a VC fund more specifically?
limited partnership with a finite lifetime (usually ten years plus optional extensions of a few years) between GP and investors (limited partners)
PE funds are structured as what legal entities and governed by what?
structured as a limited partnership and governed by the limited partnership agreement (LPA)
what does the LPA specify?
key terms of partnership
what is a management fee?
annual payment to GP for PE firms investment operations (usually 1-2% of committed capital per year)
What is the formula for investment capital?
committed capital - total management fee
what is carried interest?
share of profits of funds investments, paid to fund’s management company as performance incentive
