Reaping the benefits of investment in a privately held company by selling the company for cash or stock in a publicly held company, also known as an "exit strategy".

Source: ILPA

The geographical location of a portfolio company's main corporate office.

Source: ILPA

As the name implies, hedge funds were initially designed with the aim of hedging (protecting against) some of the risks inherent in their investments using a variety of methods, including short selling (see below) and derivatives. However, the term "hedge fund" has also come to be applied to funds that do not, in fact, hedge their investments, but which may use “hedging” techniques and a wide range of other investment methods with the aim of increasing the return on their investment. Hedge funds also tend to differ from traditional investment funds in that a performance fee of perhaps 20 per cent of the increase in a fund’s value, if any, is paid to the fund manager. In most jurisdictions hedge funds are not open to general retail investors, but only to a limited range of professional investors or wealthy individuals who meet certain criteria set by regulators. Hedge funds, meanwhile, have until now been exempt from many regulations that govern ordinary investment funds, such as those restricting short selling, the use of derivatives and leverage (see below), and fee structures. The legislation now before the European Parliament aims to bring hedge funds within a more structured regulatory framework.

Source: europarl

In finance, a hedge is undertaken to reduce risk by taking a position in one market in an attempt to offset exposure to price fluctuations in another market. There are many specific financial instruments to accomplish this, the most well known being 'futures contracts' for hedging the values of energy, precious metals, foreign currency, agricultural products and interest rate fluctuations. In these cases a company signs a contract for its future purchase of an essential product at a given price which means its costs for those products are predictable, enabling better planning. For more on this, see the definition of 'derivatives' below. Hedge funds use similar strategies to increase the predictability of their returns and protect themselves from shocks in one of their areas of activity, at a specific moment in time.

Source: europarl

The return or value that a pooled fund or segregated account must exceed for the firm to be entitled to earn a performance-based fee.

Source: GIPS

The general shape and form of a chart showing revenue, customers, cash, or some other financial or operational measure that increases dramatically at some point in the future. Entrepreneurs often develop business plans with hockey stick charts to impress potential investors.

Source: ILPA

Corporation that owns the securities of another, in most cases with voting control.

Source: ILPA

ILPA: The amount of time an investor has held an investment. The period begins on the date of purchase and ends on the date of sale, and determines whether a gain or loss is considered short-term or long-term, for capital gains tax purposes.

Invest EUROPE: The length of time an investment remains in a fund.

Source: ILPA, Invest EUROPE

A newly issued stock that is in great public demand. Technically, it is when the secondary market price on the effective date is above the new issue offering price. Hot issues usually experience a dramatic rise in price at their initial public offering because the market demand outweighs the supply.

Source: ILPA

Use in its commonly accepted sense of a hurdle return, i.e., the lowest possible return which a particular investor will accept. However, also used specifically to describe a return which a GP has to at least equal before any carry is calculated or payable. This mechanism is commonly found in buyout and development capital funds, but rarely in venture funds.

Source: ILPA

ILPA: The internal rate of return that a fund must achieve before its general partners or managers may receive an increased interest in the proceeds of the fund. Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken.

GIPS: Minimum rate of return that a pooled fund or segregated account must exceed in order for the investment manager to be able to accrue a performance-based fee.

Source: ILPA, GIPS