Private Equity Industry Dictionary
You can use this listing to help you understand some of the words and phrases you'll encounter while reviewing our Alternative Investment Management Program information.
You can browse through the entire listing
A
Active Commitments - An investment that has not reached the end of its legal term.
AIM - "Redland" Alternative Investment Management Program.
B
Benchmark - A previously agreed upon point of reference or measure used to evaluate performance.
Buyout Financing - A transaction in which a business, business unit, or company is acquired from the current shareholders (the vendor). Buyout funds are those with a strategy to acquire other businesses; this may also include mezzanine debt funds that may provide (generally subordinated) debt to facilitate financing buyouts, frequently alongside a right to some of the equity upside. Buyout financing is also known as the takeover of a company's assets and operations through the purchase of at least a controlling interest in a company's stock. The transaction usually will include a new business plan and management structure with the intent of improving the company's financial performance. Also known as corporate restructuring.
C
CalPERS - The California Public Employees' Retirement System.
Capital Commitment - A Limited Partner’s obligation to provide a certain amount of capital to a private equity fund for investments.
Capital Deployment - The portion of capital committed to a fund that is drawn down over time as the General Partner selects investments that meet the fund's investment mandate.
Carried Interest - A bonus entitlement accruing to an investment fund’s management company. Carried interest (typically up to 20 percent of the profits) becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate.
Cash In - The total capital contributed to the fund by CalPERS for the purpose of making investments and paying for the fund’s expenses and management fees.
Cash Out - The total proceeds distributed by the fund to CalPERS, which may include both return of capital and gain distributions.
Co-Investment - Investing directly in an operating company alongside a fund.
Corporate Restructuring - See buyout financing.
D
Direct Investment - Directly investing in an operating company, rather than investing through a partnership or fund vehicle.
Draw-Down - When investors commit themselves to back a private equity fund, all the funding may not be needed at once. Therefore, remaining capital is drawn down at a later date.
Due Diligence - For private equity professionals, due diligence can apply either narrowly to the process of verifying the data presented in a business plan or sales memorandum, or broadly as completing the investigation and analytical process that precedes a commitment to invest. The purpose is to determine the attractiveness, risks, and issues regarding a transaction with a potential investment. Due diligence should enable investment professionals to realize an effective decision process and optimize the deal terms.
E
Expansion Capital - The investment in established companies looking to enter new markets or expand operations.
Exit - Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO), write-offs, repayment of preference shares or loans, sale to another venture capitalist, or sale to a financial institution.
F
Fund - See Limited Partnership.
Fund-of-Funds - A pooled vehicle that invests in a number of other funds or partnerships.
G
General Partner - The managing partner in a private equity management company who has unlimited personal liability for the debts and obligations of the Limited Partnership and the right to participate in its management. The General Partner is the intermediary between investors with capital and businesses seeking capital to grow.
H
No entries at this time.
I
Initial Public Offering (IPO) - The sale or distribution of a company’s shares to the public for the first time. An IPO of the investee company’s shares is one of the ways in which a private equity fund can exit from an investment.
Internal Rate of Return (IRR) - The dollar-weighted internal rate of return, net of management fees and carried interest generated by the CalPERS investment in the fund. This return considers the daily timing of all cash flows and CalPERS cumulative fair stated value, as of the end of the reported period.
Investment Multiple - Calculation performed by adding the remaining (reported) value and the distributions received (cash out) and subsequently dividing that amount by the total capital contributed (cash in).
Investment Philosophy - The stated investment approach or focus of a management team.
J
J-Curve Effect - The curve realized by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first draw-down does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realizations are made, the fund returns start to rise quite steeply. After about three to five years, the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early-stage and expansion funds.
K
No entries at this time.
L
Limited Partner - An investor in a Limited Partnership (i.e., private equity fund).
Limited Partnership - The legal structure used by most venture and private equity funds. The partnership is usually a fixed-life investment vehicle, and consists of a General Partner (the management firm which has unlimited liability) and Limited Partners (the investors, who have limited liability and are not involved with the day-to-day operations). The General Partner receives a management fee and a percentage of the profits. The Limited Partners receive income, capital gains, and tax benefits. The General Partner manages the partnership using policy laid down in a Partnership Agreement. The agreement also covers terms, fees, structures, and other items agreed on between the Limited Partners and the General Partner.
M
Management Fee - This represents management fees currently charged (typically on committed capital).
Marketable - Easily bought or sold.
Mezzanine Debt Financing - The use of subordinated debt together with equity to finance a company just prior to an IPO; invests in the subordinated debt and/or equity of privately owned companies. Investors in subordinated instruments stand behind those with senior instruments - like bonds. To enhance investment returns, the subordinated instrument may have stock conversion features such as rights, warrants, or options.
N
Net IRR - The dollar-weighted internal rate of return, net of management fees and carried interest generated by the CalPERS investment in the fund. This return considers the daily timing of all cash flows and CalPERS cumulative fair stated value, as of the end of the reported period.
O
No entries at this time.
P
Partnership Component - See Limited Partnership.
Private Equity - Private equity provides capital to enterprises not quoted on a stock market. Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company’s balance sheet. It can also resolve ownership and management issues. A succession in family-owned companies, or the buyout and buy-in of a business by experienced managers, may be achieved using private equity funding.
Public Equity - Shares that trade on public exchanges or "over-the-counter."
Q
No entries at this time.
R
Remaining (Reported) Value - This is the current fair stated value for each of the investments, as reported by the General Partner of the fund.
Realized Proceeds (or Partially Realized Proceeds) - Cash and/or securities received by partner.
S
Subordinated Debt - Debt that is either unsecured or has a lower priority than that of another debt claim on the same asset or property (also called junior debt).
T
Total Exposure - Total exposure is the current reported value of investments plus the remaining amount of unfunded commitments.
You can use this listing to help you understand some of the words and phrases you'll encounter while reviewing our Alternative Investment Management Program information.
You can browse through the entire listing
A
Active Commitments - An investment that has not reached the end of its legal term.
AIM - "Redland" Alternative Investment Management Program.
B
Benchmark - A previously agreed upon point of reference or measure used to evaluate performance.
Buyout Financing - A transaction in which a business, business unit, or company is acquired from the current shareholders (the vendor). Buyout funds are those with a strategy to acquire other businesses; this may also include mezzanine debt funds that may provide (generally subordinated) debt to facilitate financing buyouts, frequently alongside a right to some of the equity upside. Buyout financing is also known as the takeover of a company's assets and operations through the purchase of at least a controlling interest in a company's stock. The transaction usually will include a new business plan and management structure with the intent of improving the company's financial performance. Also known as corporate restructuring.
C
CalPERS - The California Public Employees' Retirement System.
Capital Commitment - A Limited Partner’s obligation to provide a certain amount of capital to a private equity fund for investments.
Capital Deployment - The portion of capital committed to a fund that is drawn down over time as the General Partner selects investments that meet the fund's investment mandate.
Carried Interest - A bonus entitlement accruing to an investment fund’s management company. Carried interest (typically up to 20 percent of the profits) becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate.
Cash In - The total capital contributed to the fund by CalPERS for the purpose of making investments and paying for the fund’s expenses and management fees.
Cash Out - The total proceeds distributed by the fund to CalPERS, which may include both return of capital and gain distributions.
Co-Investment - Investing directly in an operating company alongside a fund.
Corporate Restructuring - See buyout financing.
D
Direct Investment - Directly investing in an operating company, rather than investing through a partnership or fund vehicle.
Draw-Down - When investors commit themselves to back a private equity fund, all the funding may not be needed at once. Therefore, remaining capital is drawn down at a later date.
Due Diligence - For private equity professionals, due diligence can apply either narrowly to the process of verifying the data presented in a business plan or sales memorandum, or broadly as completing the investigation and analytical process that precedes a commitment to invest. The purpose is to determine the attractiveness, risks, and issues regarding a transaction with a potential investment. Due diligence should enable investment professionals to realize an effective decision process and optimize the deal terms.
E
Expansion Capital - The investment in established companies looking to enter new markets or expand operations.
Exit - Liquidation of holdings by a private equity fund. Among the various methods of exiting an investment are: trade sale; sale by public offering (including IPO), write-offs, repayment of preference shares or loans, sale to another venture capitalist, or sale to a financial institution.
F
Fund - See Limited Partnership.
Fund-of-Funds - A pooled vehicle that invests in a number of other funds or partnerships.
G
General Partner - The managing partner in a private equity management company who has unlimited personal liability for the debts and obligations of the Limited Partnership and the right to participate in its management. The General Partner is the intermediary between investors with capital and businesses seeking capital to grow.
H
No entries at this time.
I
Initial Public Offering (IPO) - The sale or distribution of a company’s shares to the public for the first time. An IPO of the investee company’s shares is one of the ways in which a private equity fund can exit from an investment.
Internal Rate of Return (IRR) - The dollar-weighted internal rate of return, net of management fees and carried interest generated by the CalPERS investment in the fund. This return considers the daily timing of all cash flows and CalPERS cumulative fair stated value, as of the end of the reported period.
Investment Multiple - Calculation performed by adding the remaining (reported) value and the distributions received (cash out) and subsequently dividing that amount by the total capital contributed (cash in).
Investment Philosophy - The stated investment approach or focus of a management team.
J
J-Curve Effect - The curve realized by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first draw-down does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realizations are made, the fund returns start to rise quite steeply. After about three to five years, the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early-stage and expansion funds.
K
No entries at this time.
L
Limited Partner - An investor in a Limited Partnership (i.e., private equity fund).
Limited Partnership - The legal structure used by most venture and private equity funds. The partnership is usually a fixed-life investment vehicle, and consists of a General Partner (the management firm which has unlimited liability) and Limited Partners (the investors, who have limited liability and are not involved with the day-to-day operations). The General Partner receives a management fee and a percentage of the profits. The Limited Partners receive income, capital gains, and tax benefits. The General Partner manages the partnership using policy laid down in a Partnership Agreement. The agreement also covers terms, fees, structures, and other items agreed on between the Limited Partners and the General Partner.
M
Management Fee - This represents management fees currently charged (typically on committed capital).
Marketable - Easily bought or sold.
Mezzanine Debt Financing - The use of subordinated debt together with equity to finance a company just prior to an IPO; invests in the subordinated debt and/or equity of privately owned companies. Investors in subordinated instruments stand behind those with senior instruments - like bonds. To enhance investment returns, the subordinated instrument may have stock conversion features such as rights, warrants, or options.
N
Net IRR - The dollar-weighted internal rate of return, net of management fees and carried interest generated by the CalPERS investment in the fund. This return considers the daily timing of all cash flows and CalPERS cumulative fair stated value, as of the end of the reported period.
O
No entries at this time.
P
Partnership Component - See Limited Partnership.
Private Equity - Private equity provides capital to enterprises not quoted on a stock market. Private equity can be used to develop new products and technologies, to expand working capital, to make acquisitions, or to strengthen a company’s balance sheet. It can also resolve ownership and management issues. A succession in family-owned companies, or the buyout and buy-in of a business by experienced managers, may be achieved using private equity funding.
Public Equity - Shares that trade on public exchanges or "over-the-counter."
Q
No entries at this time.
R
Remaining (Reported) Value - This is the current fair stated value for each of the investments, as reported by the General Partner of the fund.
Realized Proceeds (or Partially Realized Proceeds) - Cash and/or securities received by partner.
S
Subordinated Debt - Debt that is either unsecured or has a lower priority than that of another debt claim on the same asset or property (also called junior debt).
T
Total Exposure - Total exposure is the current reported value of investments plus the remaining amount of unfunded commitments.
U
No entries at this time.
V
Venture Capital - Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business. Investments in either early-stage companies, when the capital is used for product development, or later-stage, when companies are generating revenue and expect to become profitable in the near future.
Vintage Year - The year of fund formation and first draw-down of capital.
W
Wilshire 2500 Ex-Tobacco + 500 bps - The CalPERS custom fund performance benchmark.
Write-Down - A reduction in the value of an investment.
X
No entries at this time.
Y
No entries at this time.
Z
No entries at this time.
No entries at this time.
V
Venture Capital - Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made for the launch, early development, or expansion of a business. Investments in either early-stage companies, when the capital is used for product development, or later-stage, when companies are generating revenue and expect to become profitable in the near future.
Vintage Year - The year of fund formation and first draw-down of capital.
W
Wilshire 2500 Ex-Tobacco + 500 bps - The CalPERS custom fund performance benchmark.
Write-Down - A reduction in the value of an investment.
X
No entries at this time.
Y
No entries at this time.
Z
No entries at this time.
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