See: Financings and Investments.

Source: ILPA

The measure of the number of potential investments that a fund reviews in any given period.

Source: ILPA

An Agreement made between the investor and the company defining the rights and obligations of the parties involved. The process by which one arrives at the final term and conditions of the investment.

Source: ILPA

Interest-bearing securities that include senior debt, mezzanine loans, shareholder loans, etc. Debt Investments may include a cash pay coupon, payment in kind interest, and/or equity enhancements such as warrants.

Source: IPEV

The amount of the management fee waived.

Source: ILPA

A letter sent by the SEC to the issuer of a new issue regarding omissions of material fact in the registration statement.

Source: ILPA

Contemplate that the company must initiate and pursue the registration of a public offering including, although not necessarily limited to, the shares proffered by the requesting shareholder(s).

Source: ILPA

This is a legally separate organisation where the formal documents showing who owns shares, bonds, etc. can be kept safely. A depositary generally has three core functions: the safe-keeping of the assets of the fund (the depositary holds the title of the assets when they are transferable instruments such as shares, or operates as a book-keeper complementing a broker’s job when it comes to derivatives); the day-to-day administration of the assets of the fund (the depositary receives the income generated by the assets); the control of the fund's operation (compliance with investment policies, notably proper creation/redemption/cancellation of the units/shares issued to the investors)

Source: europarl

An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing the amount of a company's reported earnings.

Source: ILPA

Derivatives are financial instruments based on a contract between two or more parties. As their name indicates, their value is derived from other products since the fluctuations in these underlying products affect the resulting value of the derivative. Derivatives were created centuries ago to protect intensive users of a certain product from severe price movements. Thus, airlines buy fuel futures contracts (a type of derivative) to allow them to be certain of the price they will pay for airline fuel in a year's time. Without such futures, business decisions could not be made within a predictable environment. Derivatives are also used to insure against fluctuations in exchange rates, interest rates, as well as share prices and, more recently, the risk of a default on bonds (credit default swaps or CDS). Derivatives can be traded on markets before their expiration date in the same way as shares in a company. This has led them to be used as a speculative instrument. The latest case making the headlines related to the market activity in CDS tied to Greek government bonds. Derivatives can be traded privately ("over the counter" or OTC) or publicly through dedicated exchange platforms such as Eurex or the NYSE Euronext. For exchange-traded derivatives, the market price is usually transparent. However, complications can arise with OTC contracts, as trading is handled manually, with little opportunity for those other than the direct participants to learn the prices involved or the trades undertaken. In particular with OTC contracts, there is no central exchange to collate and disseminate prices. This lack of transparency as to, effectively, who owes what to whom, has made judging the value and even solvency of some financial firms extremely complex and has led to calls to limit the trade in OTC derivatives.

Source: europarl

A reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares.

Source: ILPA

Applies to convertible securities. Standard provision whereby the conversion ratio is changed accordingly in the case of a stock dividend or extraordinary distribution to avoid dilution of a convertible bondholder's potential equity position. Adjustment usually requires a split or stock dividend in excess of 5% or issuance of stock below book value. Share Purchase Agreements also typically contain anti-dilution provisions to protect investors in the event that a future round of financing occurs at a valuation that is below the valuation of the current round.

Source: ILPA

Investments made directly in companies rather than investments made in fund investment vehicles or cash and/or cash equivalents.

Source: GIPS

Person elected by shareholders to serve on the board of directors. The directors appoint the president, vice president and all other operating officers, and decide when dividends should be paid (among other matters).

Source: ILPA

The investments by funds into their portfolio companies. The actual dollar amount flowing from a private equity fund or funds to a company in a given transaction.

Source: ILPA

A booklet outlining the risk factors associated with an investment.

Source: ILPA

Period in which the general partners focus on realizing returns on the fund's assets.

Source: ILPA

A unit, division, department, or office that is organizationally and functionally segregated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision making process. Possible criteria for determining this status include:

• Being a legal entity.

• Having a distinct market or client type (e.g., institutional, retail, or private client).

• Using a separate and distinct investment process.

Source: GIPS

Corporate bonds of companies that have either filed for bankruptcy or appear likely to do so in the near future. The strategy of distressed debt firms involves first becoming a major creditor of the target company by snapping up the company's bonds at pennies on the dollar. This gives them the leverage they need to call most of the shots during either the reorganization, or the liquidation, of the company. In the event of a liquidation, distressed debt firms, by standing ahead of the equity holders in the line to be repaid, often recover all of their money, if not a healthy return on their investment. Usually, however, the more desirable outcome is a reorganization, which allows the company to emerge from bankruptcy protection. As part of these reorganizations, distressed debt firms often forgive the debt obligations of the company, in return for enough equity in the company to compensate them. (This strategy explains why distressed debt firms are considered to be private equity firms).

Source: ILPA

A forced liquidation or distress sale (i.e., a forced transaction) is not an Orderly Transaction and is not determinative of Fair Value. An entity applies judgement in determining whether a particular transaction is distressed or forced.

Source: IPEV

The Ratio of total distributions to Limited Partners to date, to the total committed capital of the fund. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio.

Source: ILPA

ILPA : The ratio of money distributed to Limited Partners by the Fund, relative to contributions. As defined in the current GIPS Standards, any recallable distributions should be included in the numerator of this ratio. Any reinvested capital (resulting from recallable distributions) should be included in the denominator.

GIPS : Since-inception distributions divided by since-inception paid-in capital.

Source: ILPA, GIPS

Invest EUROPE: All amounts returned by the fund to the LPs. This can be in cash, or in shares or securities (in the latter case known as “distribution(s) in-specie”).

ILPA: Cash and/or securities paid out to the Limited Partners from the Limited Partnership.

GIPS: Cash or stock distributed to limited partners (or investors) from an investment vehicle. Distributions are typically at the discretion of the general partner (or the firm). Distributions include both recallable and non-recallable distributions.

Source: Invest EUROPE, ILPA, GIPS

The process of spreading investments among various different types of securities and various companies in different fields.

Source: ILPA

Capital provided to a company to facilitate the sale of its interest in a product, division or subsidiary to another business entity.

Source: ILPA

The payments designated by the Board of Directors to be distributed pro-rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortune of the company and the amount of cash on hand and may be omitted if business is poor or if the Directors determine to withhold earnings to invest in capital expenditures or research and development. Dividends can be paid either in cash or in kind, i.e. additional shares of stock. Cumulative - Missed dividend payments that continue to accrue. Non-cumulative - Missed dividend payments that do not accrue. Participating - Dividends which share (participate) with common stock. Non-participating - Dividends which do not share with common stock.

Source: ILPA

Current fair market value plus distributions since inception, less invested capital.

Source: ILPA

A misleading term when compared with time-weighted returns. Simply the calculation of the IRR of a series of fund cashflows, i.e., the compound return over time. This is the classic measure of private equity returns, and is to be commended. Great care should be taken not to confuse this measure with time-weighted returns which, contrary to first impressions, actually means something completely different (and should be avoided at al costs).

Source: ILPA

Issuance of shares at a later date and a lower price than previous investment rounds.

Source: ILPA

A majority shareholders' right, obligating shareholders whose shares are bound into the shareholders' agreement to sell their shares into an offer the majority wishes to execute.

Source: ILPA

Invest EUROPE: LP commitments to a fund are drawn down as required over the life of the fund, to make investments and to pay the fees and expenses and other liabilities of the fund. When LPs are required to pay part of their commitment into the fund, the GP issues a drawdown notice. Drawdowns are sometimes referred to as “capital calls”.

ILPA: When used by an investor, the total amount of committed capital which has actually been requested by its private equity funds. When used by a fund, the total amount of committed capital which it has actually drawndown from its investors.

Source: Invest EUROPE, ILPA

A process undertaken by potential investors -- individuals or institutions -- to analyze and assess the desirability, value, and potential of an investment opportunity. The process of assessing the business and financial viability of a potential investment target, as well as the potential terms and conditions of an investment agreement.

Source: ILPA