Buyout – an investment made by a private equity firm whereby that firm acquires a controlling ownership in a target company. A leveraged buyout (LBO) is the purchase of a controlling interest in a company or a business unit of a company by an outside investor using mostly borrowed capital.
Co-investment – A direct investment made by limited partners in a company alongside a private equity fund manager or venture capital firm. This enables limited partners invest in potentially very profitable opportunities without paying the usual fees charged by the private equity or venture capital fund. Equity co-investment opportunities are generally restricted to institutional investors who already have existing relationships with the fund managers, and are typically not available to retail investors.
Commitment – The aggregate amount of cash a partner agrees to contribute as capital to a fund throughout the fund’s investment period.
Distribution – The transfer of cash or securities to a limited partner resulting from the sale, liquidation, or IPO of one or more portfolio companies in which a general partner chose to invest.
Fund-of-Funds – A fund created to invest in private equity or venture capital funds. Benefits of this type of investing include broad diversification, appropriate asset allocation across several different fund strategies, access to top-tier fund managers, and less exposure to market volatility.
General Partner (GP) – A class of partner in a partnership. The general partner retains liability for the actions of the partnership. In the private equity world, the GP is the fund manager while the limited partners (LPs) are the institutional and high net worth investors in the partnership.
Internal Rate of Return (IRR) – A method for calculating the performance of an investment that takes the time value of money into consideration. It represents the annualized effective compound rate of return based on cash inflows and outflows of the investment.
Limited Partner (LP) – An investor in a limited partnership of a private equity or venture capital fund. A limited partner contributes financially to a private equity or venture capital fund in exchange for a portion of the partnership’s investment returns.
Private Credit - Investments in the debt of private companies. The private credit landscape spans the senior, unitranche, mezzanine and distressed debt marketplaces, all of which target a different risk-return profiles.
Venture Capital - Investments in young, early stage companies that tend to have high growth potential with negative cash flow as a result of investing in that growth. These investments are generally characterized as high-risk, high-return opportunities. Venture capital investments are made in several different stages depending on the company, starting with angel and seed investing up to expansion stage investing.