TERMS

Question 1

Assets under management

Answer 1

The value of investments managed by a PE fund. All assets under the fund’s portfolio

Question 2

Buyouts

Answer 2

purchase of a majority ownership in a business. As these businesses generate regular cash flow, debt is used for their acquisition

Question 3

The carry or carried interest

Answer 3

A share of the profits that GPs receive after the LP’s capital has been returned . 20%

Question 4

Due diligence

Answer 4

the process of assessing the financial viability and profit potential of a target investment by reviewing the operational, legal, accounting, tax and other information relating to the target business

Question 5

EBITDA

Answer 5

Earnings before interest, tax, depreciation, amortization. A measurement used to determined the operating cash flow of a business and to assess its value

Question 6

enterprise value

Answer 6

estimated price at which a business may be sold

Question 7

Fund of funds (FOF)

Answer 7

a fund that holds a portfolio of other PE funds to allow those funds to have increased diversification and asset allocation. Add extra layer of fees to provide this service

Question 8

General partner (GP)

Answer 8

GPs make all decisions relating to PE fund. Oversee the purchase, monitor and sell businesses on behalf of PE fund

Question 9

Hurdle

Answer 9

the minimum return that must be exceeded before GP is entitled to a share of the profits

Question 10

Institutional Investors

Answer 10

most frequent investors in PE. pension funds, insurance companies, university endowments, charitable foundations

Question 11

Leveraged buyout

Answer 11

Purchase of a company by using debt, with the company’s assets as collateral

Question 12

Limited partner (LPs)

Answer 12

investor of a PE that is not involved in management or making decisions on the investments. Institutional investors are the most frequent LPs

Question 13

Limited partner agreement

Answer 13

contract that defines the relationship between GPs and LPs and outlines the rights and obligations of both

Question 14

management fee

Answer 14

A fee charged by the GP or an affiliate for managing the fund. The fee was intended to cover the manager’s on-going expenses such as salaries, rent and overhead (2%)

Question 15

multiple

Answer 15

ratio used to assess the purchase price of a private business. the ratio is a multiplier normally based on EBITDA

Question 16

portfolio company

Answer 16

business owned by a PE fund

Question 17

private equity

Answer 17

ownership in a business that is not listed on the stock exchange

Question 18

PE firm

Answer 18

a professional management company that invests in private businesses through pools of capital called PE funds. PE firm oversees these investments (aka portfolio companies) until they are sold or exited

Question 19

PE fund

Answer 19

blind pools of capital that are raised from investors to buy businesses in the future. Most PE funds are structured as limited partnerships. Investments are held for a maximum time period, usually 10-12 years, after which the fund is wound up

Question 20

Venture

Answer 20

a minority investment in a new or young business, usually in a promising new sector, such as information technology or biotechnology. As companies at this stage have insufficient cash flow, they cannot obtain debt financing

Question 21

vintage year

Answer 21

the year in which a PE fund was started