Limited Partner

private equity glossary

Mutual Fund Classes

They’ll analyse risk of suppliers disinter-mediating you and going straight to the customer, and the same in reverse for customers. Some of these will have worked for your some will have worked for the PE firm. All of these hungry mouths need feeding and they are fed with “deal fees”. Let’s them interact through private equity glossary a couple of well meaning suggestions or “challenges”, which generally reveal how little they know about your business and what you’re strugglng with. Let’s the investment committee have a look at you and see if their Investment Director is holding anything back from them (for example that you’ve lost your mind).

private equity glossary

Holding Your Securities

The principles in charge of your PE firm might call themselves the General Partners. If you fail to agree final terms during your exclusivity window, private equity glossary or your PE firm pulls out then you can go to your other bidders. In this situation, though, other bidders will want to know why your deal fell apart.

An entitlement given to a certain class of shareholders that gives them a higher liquidation preference over other shareholders. private equity glossary Super pro-rata right the investor (let’s say in your A round) will ask for more than their pro-rata right.

private equity glossary

Some PE firms like you to come and do an Annual Strategy Presentation where you give the Investment Committee an update on what you’re doing and outline what the year ahead looks like. In my experience there is little correlation between the two outputs. The bigger your company is, the bigger “brand” private equity glossary people tend to want on the report then the bigger the bill tends to be. If this was a useful reference, leave your thoughts in a comment and tag someone you believe would benefit. When different classes of preferred stock have senior rights to payment over other classes of preferred stock.

Search Fund

As you go through your process, your investor and diligence providers will unearth things that are not ideal or need to be fixed but are not severe enough to private equity glossary derail the acquisition. One of the things you learn about PE is that it’s a small pond, full of gossip and all the advisors end up working for everyone.

  • Distribution in specie/Distribution in kind– This can happen if an investment has resulted in anIPO.
  • Most private equity firms will start raising a new fund when their current fund is around 70% invested.
  • Alimited partnermay receive its return in the form of stock or securities instead of cash.
  • There can also be restrictions in the US about how soon a limited partner can sell the stock .
  • Venture firms tend to raise new funds earlier than buy-out firms, because they usually need to invest in follow-on rounds for their portfolio firms.
  • The stock may not be liquid and limited partners can be left with shares that are worth a fraction of the amount they would have received in cash.

The downside is that you have to pay for it and if a deal doesn’t happen you won’t be able to bury it in the deal fees. So instead of putting themselves on the line, they’re main output is to raise “red flags” which are things that might be something to worry about. It’s then the investor’s job to work out of the red flags are real deal-breakers or not. For all the money that you spend on due diligence you would think they would come up with something concrete that you can rely on.

Preferred Shares

Funds set up to accommodate the special legal, tax, regulatory, accounting or other needs of an individual or group of LPs participating in a fund offering. These vehicles invest and divest side by side with the primary fund. A legal agreement, also known as a confidentiality agreement, that restricts access private equity glossary for third parties to information that parties share. NDAs can be structured to protect a one-way or a mutual flow of information. A legal provision that provides a buyer with the right to terminate an acquisition contract in case of an event that substantially impairs the value of the acquisition target.

They protect lenders from borrowers defaulting on their obligations. Some covenants are checked on a regular basis while others are only tested upon the occurrence of a specific event .