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MGMT S-2790 > Session 1 - Chapter 1 > Flashcards

Session 1 - Chapter 1 Flashcards

1
Q

What are the various types of private equity investments?

A
  1. Buyouts
  2. Venture Capital
  3. Mezzanine Financing
  4. Private Investments in Public Equity (PIPEs)
  5. Fund of funds (FoF)
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2
Q

What is Private Equity?

A

A medium to long-term investments in non publicly traded equity. (book) -asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. (class)

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3
Q

What are the two categories of PE investment?

A
  1. funding investing - capital in funds
  2. direct investing - capital in portfolio companies
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4
Q

What is the usual organizational form of a PE fund?

A

limited partnerships - GPs fund managers, and LPs investors.

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5
Q

What are some advantages of a limited partnership?

A

pass-thru tax entity, a finite lifetime, investors loss is equal to their capital investment.

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6
Q

What are the four stages of a PE fund?

A

1-Organizaing & Funding 2-Investment 3-Management 4-Harvest

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7
Q

Fill in the image.

A
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8
Q

What are evergreen funds?

A

Funds which are not limited life entites.

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9
Q

What are gatekeepers?

A

organizations that assist investors (LPs) in allocating their PE capital (i.e. Cambridge Associates)

Ususally compensated with a % of annual committed capital.

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10
Q

What are capital calls?

A

GP’s formal request to LPs for pledged capital. Draw down schedule varies based on funds LPA.

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11
Q

What are club deals?

A

Club deals aka syndication investments allow GPs from coopearting firms to:

  • Cultivate Relationships
  • Ensure a portfolio company has enough dry powder/reserve capital
  • Diversify Risk
  • Provide potenital exit opportunites for an initial investor
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12
Q

What are the three most common exit strategies?

A

1-Outright Sale

2-Initial Public Offering

3-Mergers

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13
Q

What is carried interest?

A

The profit particpation of the GPs, calculated after expenses often including a guaranteed normative return (preferred return).

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14
Q

What is IRR?

A

Internal rate of return - a function of the cash on cash return

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15
Q

What is the American waterall model?

A

Distribution of proceeds on a deal-by-deal basis:

  1. LPs receive return of commited Capital
  2. LPs receive a hurdle rate of committed capital
  3. return on capital profits allcoated to LPs and GPs
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16
Q

What is the European waterfall model?

A

Proceeds are distributed at the time of fund liquidation. “All contributions plus preferred return back first compensation model.”

17
Q

What is an LPA?

A

limited partner agreement - legal document specifes legal terms such as lifteime of the firm, the split of profits, amangement fees, and expense reimbursements.

18
Q

What is a follow on fund?

A

A fund that is raised subsequent to one currently run by a GP.

19
Q

What is a clawback provision?

A

Found in the American waterfall model, a provision which protects the LPs from a GP which has had early success in harvests, and less success in late harvests.

20
Q

What is a preferred return?

A

Annual return LPs are entiteld to receive on their invested capital before GPs can receive carried interest.

21
Q

What do private equity transactions involve?

A
  1. provides liquidity to privately held companies not publicy traded
  2. providing liquidity to family owned companies
  3. taking publicly traded companies delisting
  4. venture vapital segment: provide capital for start-ups to reach critical mass (non traditional companies)
22
Q

What is an FoF?

A

Partnership that invests capital in multiple PE funds, a go beteween fund from investor to larger PE funds. FoF managers may have access to PE funds not open to all.

23
Q

What is a breakpoint?

A

Fund sizes in excess of which management fee rate drops.

24
Q

How is carried interest taxed in the US?

A

capital gains @ 15%

instead of ordinary income @ 35%

25
Q

dry powder

A

Within a PE fund uncommitted capital waiting for a deal.

26
Q

term sheet

A

an initial document summarzing the key terms of an investment agreement.

27
Q

What are the 2 exemptions under Dodd-Frank for PE registration requirements?

A
  1. an investment advisor to one or more venture capital funds
  2. an investment advisor that managers only one or more private funds that has an aggregate assets under managment less than $150 million
28
Q

staged capital

A

benchmark or milestone based staged capital.

29
Q

PE mega funds

A

PE funds managing more than 1 bn

30
Q

What are some examples of covenenats in an LPA?

A
  1. types of investments
  2. size restriction for GP investment into portfolio companies
31
Q
A

MGMT S-2790 (6 decks)

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