The Ownership Equation · Appendix C
Private Equity glossary
45 terms, defined the way the book uses them.
A
- Add-on acquisition
- A business acquired to join an existing portfolio platform.
C
- Capital call
- A request for an investor to contribute capital under the fund agreement.
- Capitalization rate
- Annual property net operating income divided by property value under the stated convention.
- Carried interest
- A contractual share of investment profits allocated to the general partner or a designated vehicle.
- Cash sweep
- A requirement or assumption that specified cash is applied to debt repayment.
- Catch-up
- A waterfall tier that reallocates distributions to bring a participant's profit share to a defined level.
- Clawback
- An obligation to return specified overpayments, commonly involving excess carried interest.
- Co-investment
- An investment alongside a lead investor in a particular transaction or asset.
- Commitment
- The amount an investor agrees to supply subject to the fund's terms.
- Continuation vehicle
- A new vehicle used to hold assets transferred from an existing investment arrangement.
- Covenant
- A contractual promise or restriction in a financing or other agreement.
D
- Debt-like item
- An obligation treated as a debt adjustment under a specified valuation or purchase agreement.
- DPI
- Distributions divided by paid-in capital.
E
- EBITDA
- Earnings before interest, taxes, depreciation, and amortization; a measure requiring a stated accounting and adjustment basis.
- Enterprise value
- Value attributed to the operating enterprise under an identified convention, before the bridge to shareholder value.
- Equity value
- Value attributable to equity holders after relevant claims and adjustments.
F
- Feeder fund
- A vehicle that aggregates investors into another investment vehicle.
- Fulcrum security
- The claim at the boundary between satisfied and impaired claims under a particular restructuring valuation.
G
- General partner (GP)
- The partner with management responsibilities under the partnership arrangement; related advisory functions may sit in separate entities.
- Gross return
- A return measure before the specified deductions; its scope must be defined.
- Growth equity
- Equity investment supporting the expansion of an established business, often through a minority position.
I
- IRR
- The discount rate at which the specified cash-flow series has zero net present value.
J
- J-curve
- A pattern in which early costs and immature investments precede later realizations; it is not a guaranteed performance path.
L
- Leverage
- The use of borrowing or other senior financing to increase exposure relative to equity capital.
- Limited partner (LP)
- An investor participating under a limited partnership agreement.
- Liquidation preference
- A preferred instrument's contractual priority for specified proceeds.
M
- MOIC
- Multiple on invested capital, calculated for a defined investment scope.
N
- NAV
- Net asset value: estimated asset value less relevant liabilities under the reporting method.
- Net return
- A return after the specified fees, expenses, carry, or other deductions.
- NOI
- Net operating income from property under a stated convention, generally before debt service and certain capital items.
O
- Original-issue discount
- The difference between a financing instrument's face amount and its funded issue price when issued below par.
P
- Payment-in-kind (PIK)
- An arrangement in which interest or a return is added to a claim rather than currently paid in cash.
- Platform
- The initial business around which an investor develops a broader operating group.
- Preferred return
- A contractual distribution priority defined in the waterfall.
- Public-market equivalent (PME)
- A method comparing private investment cash flows with an identified public-market investment.
Q
- Quality of earnings
- Analysis of the sustainability, accounting basis, and cash implications of reported earnings.
R
- Recycling
- Reinvestment of specified proceeds under the fund agreement.
- RVPI
- Residual value divided by paid-in capital.
S
- Secondary transaction
- Transfer of an existing investment interest or private-market exposure.
- Subscription facility
- Fund borrowing supported by investor commitments and related rights under the financing documents.
T
- TVPI
- Distributions plus residual value, divided by paid-in capital.
U
- Unitranche
- A borrower-facing financing structure combining characteristics of multiple debt layers.
V
- Vintage year
- A fund's assigned starting year under a stated convention, used in performance comparisons.
W
- Waterfall
- The contractual sequence for allocating distributions among participants.
- Working-capital target
- An agreed reference level used to adjust acquisition proceeds under the purchase agreement.