TERMS Flashcards
Assets under management
The value of investments managed by a PE fund. All assets under the fund’s portfolio
Buyouts
purchase of a majority ownership in a business. As these businesses generate regular cash flow, debt is used for their acquisition
The carry or carried interest
A share of the profits that GPs receive after the LP’s capital has been returned . 20%
Due diligence
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
EBITDA
Earnings before interest, tax, depreciation, amortization. A measurement used to determined the operating cash flow of a business and to assess its value
enterprise value
estimated price at which a business may be sold
Fund of funds (FOF)
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
General partner (GP)
GPs make all decisions relating to PE fund. Oversee the purchase, monitor and sell businesses on behalf of PE fund
Hurdle
the minimum return that must be exceeded before GP is entitled to a share of the profits
Institutional Investors
most frequent investors in PE. pension funds, insurance companies, university endowments, charitable foundations
Leveraged buyout
Purchase of a company by using debt, with the company’s assets as collateral
Limited partner (LPs)
investor of a PE that is not involved in management or making decisions on the investments. Institutional investors are the most frequent LPs
Limited partner agreement
contract that defines the relationship between GPs and LPs and outlines the rights and obligations of both
management fee
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%)
multiple
ratio used to assess the purchase price of a private business. the ratio is a multiplier normally based on EBITDA
portfolio company
business owned by a PE fund
private equity
ownership in a business that is not listed on the stock exchange
PE firm
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
PE fund
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
Venture
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
vintage year
the year in which a PE fund was started
