Compound Annual Growth Rate. The year over year growth rate applied to an investment or other aspect of a firm using a base amount.

Source: ILPA

The right to buy a security at a given price (or range) within a specific time period.

Source: ILPA

The amount of capital available to a fund management team for venture investments. The total dollar value of capital resources, both invested and un-invested, in a private equity fund or market as a whole.

Source: ILPA

The total dollar value of Capital Under Management less those resources that have already been invested by a private equity fund. Also known as liquidity. In the case of Labour-sponsored Venture Capital Corporations, reserves required by statutes are not included in liquidity calculations.

Source: ILPA

Also known as a draw down - When a venture capital firm has decided where it would like to invest, it will approach its investors in order to "draw down" the money. The money will already have been pledged to the fund but this is the actual act of transferring the money so that it reaches the investment target.

Source: ILPA

Resources flowing from individual, institutional and other external sources to private equity funds.

Source: ILPA

The denominator of the component return calculation, defined as the “weighted-average equity” (weighted-average capital) during the measurement period. Capital employed does not include any income return or capital return earned during the measurement period. Beginning capital is adjusted by weighting the external cash flows that occurred during the period.

Source: GIPS

The difference between an asset's purchase price and selling price, when the selling price is greater. Long-term capital gains (on assets held for a year or longer) are taxed at a lower rate than ordinary income. The proceeds obtained on the sale of assets.

Source: ILPA

The change in value of the real estate investments and cash and/ or cash equivalent assets held throughout the measurement period, adjusted for all capital expenditures (subtracted) and net proceeds from sales (added). The capital return is computed as a percentage of the capital employed. Also known as “capital appreciation return” or “appreciation return.”

Source: GIPS

Also called a "Cap Table", this is a table showing the total amount of the various securities issued by a firm. This typically includes the amount of investment obtained from each source and the securities distributed - e.g. common and preferred shares, options, warrants, etc. - and respective capitalization ratios.

Source: ILPA

To record an outlay as an asset (as opposed to an Expense), which is subject to depreciation or amortization.

Source: ILPA

A venture capital firm owned by a larger financial institution, such as a bank.

Source: ILPA

ILPA: A bonus entitlement accruing to an investment fund's management company. Carried interest becomes payable once the investors have achieved repayment of their original investment in the fund, plus a defined hurdle rate, if applicable. (Varies according to each unique Limited Partnership Agreement)

Invest EUROPE: A share of the gains of the fund which accrue to the GP/Manager. The calculation of carried interest is set out in the fund formation documents. The GP is required to invest in the fund in order to be entitled to receive carried interest. Carried interest is generally regarded as the main incentive to the GP and is a key mechanism for aligning the GP and LP interests in a fund. Carried interest is typically a fixed percentage of the fund’s net gains. Fund documents typically specify the “waterfall” of fund distributions between the GP and LPs, setting out when the carried interest is payable to the GP. Generally, carried interest is payable to the GP after LPs have been repaid an amount equal to their drawn down commitments plus a “preferred return.” Thereafter, the GPs typically have the right to “catch-up” their percentage share of distributions made to LPs that represent the preferred return, before distributions are shared in the intended ratio between the LPs and GP. Carried interest is sometimes referred to as “carry”.

GIPS: The profits that the general partner is allocated from the profits on the investments made by the investment vehicle. Also known as “carry” or “promote".

Source: ILPA, Invest EUROPE, GIPS

The amount of carried interest payable accrued for payment to the General Partner.

Source: ILPA

Information about the features of the carried interest calculation, such as the hurdle rate, crystallization schedule, and high watermark.

Source: GIPS

The amount of carried interest earned by the General Partner, regardless of payment.

Source: ILPA

The amount of carried interest in escrow as of the current period.

Source: ILPA

The amount of carried interest paid as of the current period.

Source: ILPA

A portion of a portfolio that is by itself representative of a distinct investment strategy. It may be used to create a track record for a narrower mandate from a multiple-strategy portfolio managed to a broader mandate.

Source: GIPS

The amount of cash available to a company at a given point in time.

Source: ILPA

This is a common term of the private equity partnership agreement. Once the general partner provides its limited partners with their preferred return, if any, it then typically enters a catch-up period in which it receives the majority or all of the profits until the agreed upon profit-split, as determined by the carried interest, is reached.

Source: ILPA

Central Counterparty Clearing

Source: esma

Collateralized Debt Obligations

Source: esma

Credit Default Swaps

Source: esma

Standing Committee for Market and Economic Analysis

Source: esma

Central Ratings Repository

Source: esma

Commodity Futures Trading Commission

Source: esma

A clause in a business contract which stipulates that if ownership of a majority of the equity of a company changes hands, then the other party to the contract has a right to cancel, usually without liability for paying any compensation.

Source: ILPA

The part of the Bankruptcy Code that provides for reorganization of a bankrupt company's assets.

Source: ILPA

The part of the Bankruptcy Code that provides for liquidation of a company's assets.

Source: ILPA

A barrier against information flows between different divisions or operating groups within banks and securities firms. Examples include a policy barrier between the trust department from making investment decisions based on any substantive inside information that may come into the possession of other bank departments. The term also refers to barriers against information flows between corporate finance and equity research and trading operations.

Source: ILPA

A reduction in the likelihood that one or more of the firm's claimants will be fully repaid, including time value of money considerations.

Source: ILPA

ILPA: A clawback obligation represents the general partner's promise that, over the life of the fund, the managers will not receive a greater share of the fund's distributions than they bargained for. Generally, this means that the general partner may not keep distributions representing more than a specified percentage (e.g., 20%) of the fund's cumulative profits, if any. When triggered, the clawback will require that the general partner return to the fund's limited partners an amount equal to what is determined to be "excess" distributions.

Invest EUROPE: GP clawback is the repayment of any excess carried interest received. It is designed to protect LPs and requires those who receive carried interest to return amounts received, in excess of the amount they should have received. The mechanisms used to achieve such repayment include the use of escrow arrangements (where a certain portion of the carried interest is put into an escrow account to safeguard the clawback obligation), periodic or annual true-up mechanisms or personal guarantees by the ultimate recipients of the carried interest. Note that a “true-up” is a calculation to determine how much carried interest is due to the GP based on all cash flows to the date of calculation. An “interim true-up”, generally only seen in deal-by-deal distribution models, is one which is calculated during the life of the fund and takes into account the value of unrealised investments. A “final true-up” takes place either at the end of the life of the fund, when all proceeds have been distributed, or at such later time as investors are required to return distributions to the fund pursuant to an LP clawback. If the amount of carried interest due to the GP, based on the true-up calculation, is less than the amount the GP has actually received, then the excess amount is required to be returned to LPs. An LP clawback is a mechanism which requires LPs to return distributions to cover potential fund liabilities, including indemnification obligations, and can be payable after the end of the life of the fund.

GIPS: The repayment of previously earned performance-based fees resulting from subsequent underperformance.

Source: ILPA, Invest EUROPE, GIPS

Guarantees that the stated profit allocation defined in the LPA is met at the end of a partnership's term with respect to the Limited Partners.

Source: ILPA

IPLA : A type of fund that has a fixed number of shares outstanding, which are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock. The market price of a closed-end fund fluctuates in response to investor demand as well as changes in the values of its holdings or its Net Asset Value. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Europarl : Like a company, this type of fund issues a set number of shares in an initial public offering and they trade on an exchange. Its share price is determined not by the total value of the assets it holds, but by investor demand for the fund. Because an investor pulling out of a closed-end fund must sell its share of the fund on the market to another buyer, the fund's manager is not faced with the prospect of repaying large sums to his investors himself. In difficult times the fund manager can therefore continue taking more long-term decisions than an open-ended fund manager. Being quoted on stock markets, closed-ended funds have more reporting requirements than open-ended funds.

GIPS : A pooled fund that is not open for subscriptions and/or redemptions.

Source: ILPA

An investment event occurring after the required legal documents are implemented between the investor and a company and after the capital is transferred in exchange for company ownership or debt obligation.

Source: ILPA

ILPA : The syndication of a private equity financing round or an investment by individuals (usually general partners) alongside a private equity fund in a financing round. Two or more investors in a given transaction. Also known as syndication. The average rate of co-investment is the total number of investments made in the total number of deals in a given period.

Invest EUROPE : In relation to an LP co-investment, this is a co-investment by an LP in a portfolio company alongside a fund, where the LP is an investor in such fund. The term co-investment may also be used to refer to an external syndication of a private equity financing round. In contrast, the terms “consortium deal” or “club deal” are typically used to describe a situation where two or more funds with different GPs work together to acquire a stake in a portfolio company.

Source: ILPA

Allows investors to sell their shares of stock in the same proportions and for the same terms as the founders, managers, or other investors, should any of those parties receive an offer.

Source: ILPA

The Invest Europe Code of Conduct, which is as follows:
1. Act with integrity
2. Keep your promises
3. Disclose conflicts of interest
4. Act in fairness
5. Maintain confidentiality
6. Do no harm to the industry Compliance with the Code is mandatory for all Invest Europe members and it is expected that the member procures that its affiliates working with it will also adhere to the Code.

Source: Invest EUROPE

Agreed upon adjustments in the number of shares offered in a stock-for-stock exchange to account for price fluctuations before the completion of the deal.

Source: ILPA

European Commission

Source: esma

The period of time within which the fund can make investments as established in the LPA for the fund.

Source: ILPA

ILPA: The total dollar amount of capital pledged to a private equity fund.

GIPS: Pledges of capital to an investment vehicle by investors (limited partners and the general partner) or the firm. Committed capital is typically drawn down over a period of time. Also known as “commitments".

Source: ILPA, GIPS

Capital committed by investors. Cash to the maximum of these commitments may be requested or drawn down by the private equity managers usually on a deal-by-deal basis. This amount is different from invested funds for three reasons. First, most partnerships will initially invest only between 80% and 95% of committed funds (possibly even less). Second, it may be necessary in early years to deduct the annual management fee that is used to cover the cost of operation of a fund. Third, payback to investors usually begins before the final draw down of commitments has taken place. To the extent that capital invested does not equal capital committed, limited partners will have their private equity returns diluted by the much lower cash returns earned on the uninvested portion. Avoiding this situation is the main reason for the Partners Group over-commitment model, which aims to keep Partners Group products as close 100% invested as possible.

Source: ILPA

A unit of ownership of a corporation. In the case of a public company, the stock is traded between investors on various exchanges. Owners of common stock are typically entitled to vote on the selection of directors and other important events and in some cases receive dividends on their holdings. Investors who purchase common stock hope that the stock price will increase so the value of their investment will appreciate. Common stock offers no performance guarantees. Additionally, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and preferred stock take precedence over the claims of those who own common stock.

Source: ILPA

The redemption of private stock by the management of a Portfolio Company. This is a common Exit Mechanism for private equity funds. The redemption of private of restricted holdings by the portfolio company itself. In essence the company is buying out the VC's interest.

Source: ILPA

The capital returns and income returns of a real estate composite, real estate pooled fund, or a benchmark.

Source: GIPS

An aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy.

Source: GIPS

The date when the firm first groups one or more portfolios to create a composite. The composite creation date is not necessarily the same as the composite inception date.

Source: GIPS

Detailed criteria that determine the assignment of portfolios to composites. Criteria may include, but are not limited to, investment mandate, style or strategy, asset class, the use of derivatives, leverage and/or hedging, targeted risk metrics, investment constraints or restrictions, and/or portfolio type (e.g., segregated account or pooled fund; taxable versus tax exempt).

Source: GIPS

General information regarding the investment mandate, objective, or strategy of the composite. The composite description may be more abbreviated than the composite definition but must include all key features of the composite and must include enough information to allow a prospective client to understand the key characteristics of the composite’s investment mandate, objective, or strategy, including:

• The material risks of the composite’s strategy.

• How leverage, derivatives, and short positions may be used, if they are a material part of the strategy.

• If illiquid investments are a material part of the strategy.

Source: GIPS

The initial date of the composite’s track record.

Source: GIPS

The date that the last portfolio exits a composite, or the date that the firm no longer manages the strategy for segregated accounts or offers the strategy to prospective clients.

Source: GIPS

Also called a leveraged rollup, this is an investment strategy in which a leveraged buyout (LBO) firm acquires a series of companies in the same or complementary fields, with the goal of becoming a dominant regional or nationwide player in that industry. In some cases, a holding company will be created to acquire the new companies. In other cases, an initial acquisition may serve as the platform through which the other acquisitions will be made.

Source: ILPA

The total capital that a Limited Partner paid into the fund.

Source: ILPA

The number of shares of stock into which a convertible security may be converted. The conversion ration equals the par value of the convertible security divided by the conversion price.

Source: ILPA

Rights by which preferred stock "converts" into common stock. Usually, one has this right at any time after making an investment. Company may want rights to force a conversion upon an IPO; upon hitting of certain sales or earnings' targets, or upon a majority or supermajority vote of the preferred stock. Conversion rights may carry with them anti-dilution protections.

Source: ILPA

A bond, debenture or preferred stock that is exchangeable for another type of security (usually common stock) at a pre-stated price. Convertibles are appropriate for investors who want higher income, or liquidation preference protection, than is available from common stock, together with greater appreciation potential than regular bonds offer.(See Common Stock, Dilution, and Preferred Stock).

Source: ILPA

The document prepared when a corporation is formed. The Charter sets forth the objectives and goals of the corporation, as well as a complete statement of what the corporation can and cannot do while pursuing these goals.

Source: ILPA

A private equity fund that is a division or subsidiary of a financial or industrial corporation.

Source: ILPA

Corporations manufacturing products or delivering non-financial services.

Source: Invest Europe

Venture capital provided by [in-house investment funds of] large corporations to further their own strategic interests.

Source: ILPA

A legal, taxable entity chartered by a state or the federal government. Ownership of a corporation is held by the stockholders. Two forms: "C Corp." and "S Corp." - the latter of which provides flow-through taxation.

Source: ILPA

A protective clause in an agreement.

Source: ILPA

The Capital Pool Company program is a corporate finance tool for emerging companies offered through the TSX Venture Exchange. The CPC Program pairs an eligible private company with a public Capital Pool Company which serves as the vehicle for taking the private company public.

Source: ILPA

Committee on Payment and Settlement Systems

Source: esma

Credit Rating Agencies

Source: esma

Capital Requirements Directive

Source: esma

A Private Capital fund that invests in fixed income Investments. A Credit Fund may invest in short-term or long-term bonds, securitised products, instruments or debt.

Source: IPEV

Where a firm invests in the same company at different times from different funds, i.e., uses their current fund towards a financing round in a company which forms part of the portfolio of one of their earlier funds.

Source: ILPA

The point in time when the firm is entitled to receive the performance-based fee and the fee is effectively earned.

Source: GIPS

Central Securities Depositories

Source: esma

Dividends that accrue at a fixed rate until paid are "Cumulative Dividends" which are payments to shareholders made with respect to an investor's Preferred Stock. Generally, holders of Preferred Shares are contractually entitled to receive dividends prior to holders of Common Stock. Dividends can accumulate at a fixed rate (for example 8%) or simply be payable as and when determined by a company's Board of Directors in such amount as determined by the board. Because venture backed companies typically need to conserve cash, the use of Cumulative Dividends is customary with the result that the Liquidation Preference increases by an amount equal to the Cumulative Dividends. Cumulative Dividends are often waived if the Preferred Stock converts to Common Stock prior to an IPO but may be included in the aggregate value of Preferred Stock applied to the Conversion Ratio for other purposes. Dividends that are not cumulative are generally called "when, as and if declared dividends."

Source: ILPA

A stock having a provision that if one or more dividend payments are omitted, the omitted dividends (arrearage) must be paid before dividends may be paid on the company's common stock.

Source: ILPA

When shareholders have the right to pool their votes to concentrate them on an election of one or more directors rather than apply their votes to the election of all directors. For example, if the company has 12 openings to the Board of Directors, in statutory voting, a shareholder with 10 shares casts 10 votes for each opening (10x12= 120 votes). Under the cumulative voting method however, the shareholder may opt to cast all 120 votes for one nominee (or any other distribution he might choose). Compare Statutory Voting.

Source: ILPA

The current three month quarterly period.

Source: ILPA

The fee payable to the custodian for the safekeeping of portfolio assets. Custody fees are considered to be administrative fees and typically contain an asset-based portion and a transaction-based portion. The custody fee may also include charges for additional services, including accounting, securities lending, and/or performance measurement. Custodial fees that are charged per transaction should be included in the custody fee and not included as part of transaction costs.

Source: GIPS