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private equity glossary

A back-end load is assessed at redemption , while a front-end load is paid at the time of purchase. Interest rate – The fixed amount of money that an issuer agrees to pay the bondholders. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength. Federal Funds Rate – The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks private equity glossary needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board. EPS – The portion of a company’s profit allocated to each outstanding share of common stock. Daily dividend factor – Daily dividend distributed by a money market mutual fund.

private equity glossary

In addition to registration of the RIA firm, most states require each individual performing advisory services on behalf of an RIA firm to register as an investment advisor representative. Most states require advisor representatives to submit a Uniform Application for Securities Industry Registration or Transfer (U-4), containing specific background information about the advisor representative. The fund sponsor refers to either the individual or entity that manages and makes decisions about the investments in an investment fund. A finder is an individual who is not registered with FINRA as a broker-dealer, but who locates potential investors on behalf of an issuer and then facilitates an introduction between the investor and the company. Only registered broker-dealers may receivetransaction-based compensation. Hedge fund managers that manage only pooled investment funds need not register as a CTA unless they manage separately managed accounts.

private equity glossary

The BVI and the Cayman Islands are the two most common offshore jurisdictions, with Cayman Islands being the more commonly used of the two. BVI has recently gained the reputation as being a cost-effective and convenient jurisdiction. BVI’s regulatory structure has sought to create a flexible jurisdiction with streamlined processes and strong legal certainty. BVI’s regulatory filing fees are considerably lower than private equity glossary those of the Cayman Islands. An accredited Investor is an investor that meets certain income or net worth requirements set by the Securities and Exchange Commission under Rule 501 ofRegulation D. For individuals, the income requirement is $200,000 annual income or $300,000 when combined with a spouse. The net worth requirement is $1,000,000 exclusive of the positive equity in the investors’ primary residence.

Care must be taken, however, not to allow side letters to prejudice other investors. For example, side letters that provide additional information rights or preferential liquidity treatment can present significant liability. Also known as a Parallel fund structure, a side-by-side structure has a U.S. fund and offshore fund that parallel each other in trading and have the same investment manager but maintain separate investment portfolios. There private equity glossary are certain categories of investments that are not considered securities, including commodities and futures (governed by theCommodity Futures Trading Commission ) and certain real estate transactions. You should speak with an experienced attorney before concluding that any form of investment relationship does not involve a security. Under a SCOR Offering, an issuer is limited to raising a maximum of one million dollars in a 12 month period.

A prepayment penalty, also known as a prepay, is a common term between a borrower and a bank or other lender that regulates the borrower’s ability to pay their debt ahead of the pre-agreed schedule. This helps compensate lenders for the time, effort and possible rate changes associated with reallocating their lending dollars. Generally, debt is evidenced by a note, bond, mortgage or other instruments that states the repayment and interest provisions. The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.

NFA membership requires associated persons of a CPO or CTA to pass the Series 3 Examination. CPOs that are hedge fund managers must submit hedge fund offering documentsto the NFA for review prior to launching the fund. The limited partnership agreement (or in the case of an LLC-based fund, an operating agreement) is the legal governing document of the fund. The limited partnership agreement outlines the private equity glossary terms of the fund and rights of an investor and fund manager. In contrast with theprivate placement memorandum, which is written in plain english, the fund’s limited partnership agreement is a complicated legal document written in technical terms. Investment advisor representatives are individuals who work for investment advisory companies whose main responsibility is to provide investment advice.

The long-term pool of financial assets held by many universities, hospitals, foundations and other nonprofit institutions. Independently wealthy individuals who invest their own money into startup companies, usually as part of a broader investment strategy. Of course, this dictionary is not a complete representative of all the words and phrases found in legal clauses, obscure securities laws, and terms of private equity glossary art. But we hope this resource serves as a springboard for founders, aspiring investors, journalists, and the merely curious to learn more. Most offering documents allow the management team to negotiate special terms that are not applicable to other investors. Often the special arrangement involves better economic terms, such as reduced management or performance fees, or more convenient withdrawal terms.

Mature Fundsunds That Have Been In Existence For Over Two Years

Rule 505 requires that strictly prescribed information be given to the unaccredited investors, including audited financial statements. The performance allocation is one of the defining characteristics of alternative funds , and distinguishes them from mutual funds, which are generally permitted to charge onlymanagement fees. The performance allocation is intended to align the interests of the fund manager with that of the investor and provide significant upside potential for fund managers. Hedge funds investing in commodities derivatives must register as acommodity pool operator with the CFTC unless an exemption applies. Individuals and companies that advise clients on separately managed accounts (non-pooled) must register as acommodity trading advisor .

Pipeprivate Investment In Public Equity

An investor in a limited partnership that generally has limited liability and is not involved in the day-to-day operations. The general partner manages the operations of the limited partnership based on terms included in the partnership agreement. The general partner has unlimited liability for the debts and obligations of the limited partnership private equity glossary and receives a management fee and a percentage of the profits. An increase in the value of a capital asset that gives it a higher worth than the purchase price. Purchase of stock in a company from a shareholder, rather than purchasing stock directly from the company. This refers to a public offering subsequent to an initial public offering.

An investor measures a company’s growth by determining whether or not they have met certain benchmarks. For example, company A has met the benchmark of having X amount of recurring revenue after 2 years in the market. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Value stock – Typically an overlooked or underpriced company that is growing at slower rates.

  • The Fund is classified as a non-diversified management investment company under the Investment Company Act of 1940, as amended.
  • Accordingly, the Fund may be more sensitive to any single economic, business, political or regulatory occurrence than the value of shares of a diversified investment company.
  • An ownership interest in a company the shares of which are not traded on any exchange or otherwise available to the public.
  • A rate of return that must be earned by the investors in a transaction or fund before the investment manager is entitled to receive an incentive fee.
  • The two main kinds of private equity are buyouts and venture capital.
  • This means that the Fund may invest a greater portion of its assets in a limited number of issuers than would be the case if the Fund were classified as a diversified management investment company.

Market Indices

It must also provide two years of audited financial statements if the offering amount exceeds $500,000. Because of the burden of state registration, we would only recommend the SCOR offering in very limited circumstances, and when other exemptions are unavailable. Regulation D Rule 505, like Rule 504, is governed by Section 3 of the Securities Act. It is a safe harbor provision for offerings that will not exceed five million dollars. Because of the benefits that are offered under Rule 506, this exemption is rarely relied upon, except as a backup exemption. Rule 505 permits the issuer to offersecuritiesto no more than 35 unaccredited investors. This rule prohibits general solicitation or advertising to potential investors.

London Interbank Offered Rate (libor)

The anti-fraud provisions prohibit the making of a misstatement or omission of a material fact in connection with an offering ofsecurities. The company and its officers and directors can be held liable for violations. One of the key purposes of aprivate placement memorandumis to make full and adequate disclosure of the terms of a private offering to avoid violating the anti-fraud provisions, including carefully drafted risk factors. Additionally, each state has its own securities fraud provisions. The complexity of a securities offering requires an issuer or fund sponsor to be familiar with key securities law terminology.

Rather, most hedge fund managers trading futures would register as a commodity pool operator . The capital account concept is very important in hedge fund, particularly in calculating incentive compensation. The incentive compensation paid to a hedge fund manager is not a true “fee,” but an allocation from a limited partner’s capital account to the capital account of the hedge fund manager. This structure affects the tax attributes of the incentive compensation. The British Virgin Islands is a popular jurisdiction for offshore hedge funds and other private funds.

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