Private equity begrippen

What is an Add-on?

An Add-on is an acquisition where a portfolio company of a Private Equity fund acquires another company (an 'Add-on') to achieve growth and synergies. See also 'Buy-and-Build strategy'.

What is a Business Angel?

A Business Angel is a wealthy person who invests capital in start-ups in exchange for ownership stakes or convertible bonds. They often also offer management advice and access to their network.

What is a Buy & Build strategy?

A Buy & Build strategy is an investment strategy where a Private Equity fund acquires a platform company and then purchases additional, complementary companies to accelerate growth and realise economies of scale.

What is Buy-Out Capital?

Buy-Out Capital refers to the capital used to completely take over a company, typically by buying out the existing shareholders.

What is a Capital Call?

A Capital Call is a request from a Private Equity fund to its investors (Limited Partners) to provide a portion of the committed capital for investments.

What is Capital Called?

Capital Called is the total amount of capital that a Private Equity fund has requested from its investors for investments, operational costs, or other purposes.

What is Carried Interest?

Carried Interest is the share of a Private Equity fund's profits that is paid to the fund managers, usually based on a predetermined performance benchmark.

What is a Catch-up Clause?

The Catch-up Clause ensures that once the minimum return requirement (the 'Hurdle') is met, the fund manager is also entitled to receive the minimum return. Only after the Catch-up Clause is satisfied is the performance fee ('Carried Interest') paid out.

What is a Claw back?

A Claw back is a clause in a Private Equity fund agreement that ensures fund managers repay a portion of their previously received Carried Interest if the fund ultimately does not deliver the expected return.

What is a Closed-end fund?

A Closed-end fund is an investment fund that raises a fixed amount of capital and invests it over a specified period, after which the fund is liquidated, and the proceeds are distributed to the investors.

What does a co-investor do?

A co-investor invests alongside a Private Equity fund directly into a company, usually on the same terms as the fund itself.

What is a commitment?

A commitment is the promise by an investor to invest a certain amount of capital in a Private Equity fund.

What is Committed Capital?

Committed Capital is the total amount of capital that investors have pledged to invest in a Private Equity fund.

What is a Data Room?

A Data Room is a secure online space where confidential information about a company is stored and shared during due diligence processes.

What is Deal Flow?

Deal Flow refers to the quantity and quality of investment opportunities received by a Private Equity fund.

What is a distribution?

A distribution is a payment of capital or profit from a Private Equity fund to its investors.

What is a Distribution Waterfall?

A Distribution Waterfall describes the order and conditions under which proceeds from investments are distributed among investors and fund managers.

What does Distribution to Paid In (DPI) mean?

Distribution to Paid In (DPI) is a metric indicating how much capital a fund has returned to its investors as a percentage of the committed capital.

What is a Drawdown?

A Drawdown is the same as a Capital Call, where a fund requests capital from its investors to finance an investment.

What is Dry Powder?

Dry Powder refers to the unused, available capital that a Private Equity fund can deploy for future investments.

What is Due Diligence (DD)?

Due Diligence (DD) is a thorough assessment of a company by an investor to evaluate the risks and opportunities of a potential investment.

What is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is a measure of a company's operating profitability.

When does one speak of Effective Efficiency?

Effective Return is the actual return achieved by an investor, taking into account factors such as costs, inflation and the time factor.

What is Enterprise Value (EV)?

Enterprise Value (EV) is the total value of a company, including debts, minority interests, and preferred equity, minus cash and cash equivalents.

What is Envy Ratio?

Envy Ratio is a metric used to compare the interests of different groups of investors in a company.

What does 'Equity' stand for?

Equity refers to the ownership interest or shares in a company.

What is an Evergreen Fund?

An Evergreen Fund is an investment fund with no fixed maturity, where capital can be continuously reinvested and new investments can be made.

What is an Exit?

An Exit is the point at which a Private Equity fund sells its stake in a company to realise a profit, such as through an IPO or sale to a strategic or financial buyer.

What is Fair Market Value (FMV)?

Fair Market Value (FMV) is the estimated price at which an asset could be sold on the open market.

What is a First Closing?

A First Closing is the initial phase of closing a Private Equity fund, during which the initial capital from investors is secured and can be invested.

What is a fund?

A fund is a pool of capital from multiple investors, managed by a fund manager, that is invested in various assets (companies) to generate returns.

What is a Fund of Funds?

A Fund of Funds is an investment fund that invests in other mutual funds rather than directly in shares, bonds or other securities.

What does the General Partner do?

The General Partner is responsible for managing a Private Equity fund, including making investment decisions and managing the fund.

What is Growth Capital?

Growth Capital is capital provided to companies to finance expansion, acquisitions, or other growth opportunities.

What is a Hard Cap?

A Hard Cap is the maximum amount of capital a Private Equity fund is allowed to raise from investors.

What is the Hurdle Rate?

The Hurdle Rate is the minimum return that a Private Equity fund must achieve before the fund managers can claim Carried Interest, usually between 6-8%.

What is an Initial Public Offering (IPO)?

An Initial Public Offering (IPO) is the initial public offering of a company's shares to the public to raise capital (IPO).

What does Internal Rate of Return (IRR) stand for?

Internal Rate of Return (IRR) is the return on an investment calculated as the discount rate that makes the net present value of the cash flows equal to zero.

What is an investment period?

An investment period is the duration during which a Private Equity fund actively invests in new companies, usually several years.

What is a J-Curve?

A J-Curve is a graphical representation of the typical return pattern of a Private Equity fund, where initial investments often generate negative returns before yielding positive returns.

What is a Lead Investor?

A Lead Investor is the main investor in an investment round, often playing a significant role in structuring the deal and attracting other investors.

What is Leverage?

Leverage is the use of borrowed capital to increase the potential return on an investment.

What is a Leveraged Buy Out (LBO)?

A Leveraged Buy Out (LBO) is an acquisition of a company where a significant amount of borrowed capital is used to finance the purchase.

What is a Limited Partner?

A Limited Partner is an investor in a Private Equity fund who is only liable up to the amount of their investment and does not play an active role in managing the fund.

What is a Lock-up period?

A Lock-up period is a predetermined period during which investors cannot sell or transfer their investments in a fund.

What is an LPA?

An LPA is the agreement between a Private Equity fund and its Limited Partners, outlining the terms of the investment.

What is a Management Buy Out (MBO)?

A Management Buy Out (MBO) is an acquisition where the management team of a company buys the company using external financing.

What is a Management Fee?

Management Fee is the fee fund managers receive for managing a Private Equity fund, usually a percentage of the assets under management.

What is a Money Multiple?

A Money Multiple is a measure of the total return on an investment, calculated as the ratio of capital received to capital invested.

What is Money On Invested Capital (MOIC)?

Money On Invested Capital (MOIC) is another term for Money Multiple and indicates the total value of an investment as a multiple of the invested capital.

What is a Multiple?

A Multiple is a measure of a company's valuation, often calculated as the ratio between the company's performance (such as EBITDA) and its market value.

What is Net Asset Value (NAV)?

Net Asset Value (NAV) is the total value of a fund's assets minus its liabilities, divided by the number of outstanding shares.

What is Net Invested Capital?

Net Invested Capital is the total amount of capital a fund has invested, excluding any repayments or distributions to investors.

What is Performance / Return Drag?

Performance / Return Drag refers to factors that reduce a fund's return, such as management fees, poor investments or economic conditions.

What are preferred shares?

Preferred shares are shares that have priority over common shares in the distribution of dividends and liquidation proceeds.

What is a Primary Fund?

A Primary Fund is a Private Equity fund that invests directly in companies, as opposed to a Fund of Funds that invests in other funds.

What is a private equity fund?

A Private Equity Fund is an investment vehicle that raises capital from investors to invest in private unlisted companies with the aim of increasing value and ultimately (financially) profit when these companies are sold.

What is Residual Value to Paid In (RVPI)?

Residual Value to Paid In (RVPI) is a measure of the remaining value of the assets in a fund as a percentage of the invested capital.

What is a Secondary Fund?

A Secondary Fund is a Private Equity fund that acquires existing stakes in other Private Equity funds or portfolio companies from original investors.

What is a Secondary Transaction?

A Secondary Transaction is the sale of existing interests in a Private Equity fund or portfolio company to another investor.

What are Secondaries?

Secondaries refer to the markets and transactions for existing stakes in Private Equity funds, where these stakes are resold to other investors.

What is Seed Capital?

Seed Capital is the initial funding provided to a start-up company to support the early stages of development.

What is a Subscription Agreement?

A Subscription Agreement is the agreement in which an investor commits to investing capital in a Private Equity fund, including the terms of this commitment.

What is an entry threshold?

An entry threshold is the minimum amount of capital an investor must pledge to participate in a private equity fund.

What is Top Quartile?

Top Quartile refers to the performance of a fund that falls in the highest quartile of all funds in the same category, based on returns.

What does Total Value to Paid In (TVPI) mean?

Total Value to Paid In (TVPI) is a measure of the total return of a fund, including realised and unrealised gains, as a percentage of the invested capital.

What is a Track Record?

Track Record is the historical performance of a fund manager or investment fund, often used as an indicator of future performance.

What is a Venture Capital Fund (VC)?

A Venture Capital Fund (VC) is a type of Private Equity fund that invests in start-ups and young companies with high growth potential.

What is Vintage Year?

Vintage Year is the year in which a Private Equity fund receives its first capital commitment and begins investing.

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