Glossary

 

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Acquisition
The process of taking over a controlling interest in another company. Acquisition also describes any deal where the bidder ends up with 50 per cent or more of the company taken over.

 

Advisory board
An advisory board is common among smaller companies. It is less formal than the board of directors. It usually consists of people, chosen by the company founders, whose experience, knowledge and influence can benefit the growth and direction of the business. The board will meet periodically but does not have any legal responsibilities in regard to the company.

 

Alternative assets
This term describes non-traditional asset classes. They include private equity, venture capital, hedge funds and real estate. Alternative assets are generally more risky than traditional assets, but they should, in theory, generate higher returns for investors.

 

Asset
Anything owned by an individual, a business or financial institution that has a present or future value i.e. can be turned into cash. In accounting terms, an asset is something of future economic benefit obtained as a result of previous transactions. Tangible assets can be land and buildings, fixtures and fittings; examples of intangible assets are goodwill, patents and copyrights.

 

Asset allocation
The percentage breakdown of an investment portfolio. This shows how the investment is divided among different asset classes. These classes include shares, bonds, property, cash and overseas investments. Institutions structure their allocation to balance risk and ensure they have a diversified portfolio. The asset classes produce a range of returns - for example, bonds provide a low but steady return, equities a higher but riskier return. Cash has a guaranteed return. Effective asset allocation maximises returns while covering liabilities.

 

Asset management

The management of a client's investments by a financial services company, usually an investment bank. The company will invest on behalf of its clients and give them access to a wide range of traditional and alternative product offerings that would not be to the average investor.

B

Balanced fund
A fund that spreads its investments between various types of assets such as stocks and bonds. Investors can avoid excessive risk by balancing their investments in this manner, but should expect only moderate returns.

 

Benchmark
This is a standard measure used to assess the performance of a company. Investors need to know whether or not a company is hitting certain benchmarks as this will determine the structure of the investment package. For example, a company that is slow to reach certain benchmarks may compensate investors by increasing their stock allocation.

 

Bid-ask Spread
Difference between the bid and offering price of a share

 

Bridge loan
a kind of short-term financing that allows a company to continue running until it can arrange longer-term financing. Companies sometimes seek this because they run out of cash before they receive long-term funding; sometimes they do so to strengthen their balance sheet in the run up to flotation.

 

Business angels
individuals who provide seed or start-up finance to entrepreneurs in return for equity. Angels usually contribute a lot more than pure cash - they often have industry knowledge and contacts that they can pass on to entrepreneurs. Angels sometimes have non-executive directorships in the companies they invest in.

 

Buy-out
This is the purchase of a company or a controlling interest of a corporation's shares. This often happens when a company's existing managers wish to take control of the company. See management buy-out

C

Capital call
see drawdown

 

Capital commitment
Every investor in a private equity fund commits to investing a specified sum of money in the fund partnership over a specified period of time. The fund records this as the limited partnership's capital commitment. The sum of capital commitments is equal to the size of the fund. Limited partners and the general partner must make a capital commitment to participate in the fund.

 

Capital distribution
These are the returns that an investor in a private equity fund receives. It is the income and capital realised from investments less expenses and liabilities. Once a limited partner has had their cost of investment returned, further distributions are actual profit. The partnership agreement determines the timing of distributions to the limited partner. It will also determine how profits are divided among the limited partners and general partner.

 

Capital drawdown
see drawdown

 

Capital gain
When an asset is sold for more than the initial purchase cost, the profit is known as the capital gain. This is the opposite to capital loss, which occurs when an asset is sold for less than the initial purchase price. Capital gain refers strictly to the gain achieved once an asset has been sold - an unrealised capital gain refers to an asset that could potentially produce a gain if it was sold. An investor will not necessarily receive the full value of the capital gain - capital gains are often taxed; the exact amount will depend on the specific tax regime.

 

Capital under management
This is the amount of capital that the fund has at its disposal, and is managing, for investment purposes.

 

Captive firm
A private equity firm that is tied to a larger organisation, typically a bank, insurance company or corporate.

 

Carried interest
The share of profits that the fund manager is due once it has returned the cost of investment to investors. Carried interest is normally expressed as a percentage of the total profits of the fund. The industry norm is 20 per cent. The fund manager will normally therefore receive 20 per cent of the profits generated by the fund and distribute the remaining 80 per cent of the profits to investors.

 

Catch up
A clause that allows the general partner to take, for a limited period of time, a greater share of the carried interest than would normally be allowed. This continues until the time when the carried interest allocation, as agreed in the limited partnership, has been reached. This usually occurs when a fund has agreed a preferred return to investors - a fund may return the cost of investment, plus some other profits, to investors early.

 

Clawback
A clawback provision ensures that a general partner does not receive more than its agreed percentage of carried interest over the life of the fund. So, for example, if a general partner receives 21 percent of the partnership's profits instead of the agreed 20 per cent, limited partners can claw back the extra one per cent.

 

Closed-end fund

A fund that offers a fixed number of shares. The fixed number of shares outstanding 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.

 

Closing

This term can be confusing. If a fund-raising firm announces it has reached first or second closing, it doesn’t mean that it is not seeking further investment. When fund raising, a firm will announce a first closing to release or drawdown the money raised so far so that it can start investing. A fund may have many closings, but the usual number is around three. Only when a firm announces a final closing is it no longer open to new investors.

 

Closing
This term can be confusing. If a fund-raising firm announces it has reached first or second closing, it doesn't mean that it is not seeking further investment. When fund raising, a firm will announce a first closing to release or drawdown the money raised so far so that it can start investing. A fund may have many closings, but the usual number is around three. Only when a firm announces a final closing is it no longer open to new investors.

 

Closing
This term can be confusing. If a fund-raising firm announces it has reached first or second closing, it doesn't mean that it is not seeking further investment. When fund raising, a firm will announce a first closing to release or drawdown the money raised so far so that it can start investing. A fund may have many closings, but the usual number is around three. Only when a firm announces a final closing is it no longer open to new investors.

 

Co-investment
Although used loosely to describe any two parties that invest alongside each other in the same company, this term has a special meaning when referring to limited partners in a fund. If a limited partner in a fund has co-investment rights, it can invest directly in a company that is also backed by the private equity fund. The institution therefore ends up with two separate stakes in the company - one indirectly through the fund; one directly in the company. Some private equity firms offer co-investment rights to encourage institutions to invest in their funds.

The advantage for an institution is that it should see a higher return than if it invested all its private equity allocation in funds - it doesn't have to pay a management fee and won't see at least 20 per cent of its return swallowed by a fund's carried interest. But to co-invest successfully, institutions need to have sufficient knowledge of the market to assess whether a co-investment opportunity is a good one.

 

Company buy-back
The process by which a company buys back the stake held by a financial investor, such as a private equity firm. This is one exit route for private equity funds.

 

Corporate governance
Standards for the management and supervision of companies defining the spheres of accountability for Shareholders, Management Boards and Supervisory Boards of public companies. These standards aim at early identification of undesirable developments and the prevention of critical situations in a company.

 

Corporate venturing
This is the process by which large companies invest in smaller companies. They usually do this for strategic reasons. For example, a large corporate such as Nokia may invest in smaller technology companies that are developing new products that can be assimilated into the Nokia product range. A large pharmaceutical company might invest in R&D centres on the basis that they get first refusal of research findings.

D

Debt financing
This is raising money for working capital or capital expenditure through some form of loan. This could be by arranging a bank loan or by selling bonds, bills or notes (forms of debt) to individuals or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay principal plus interest on the debt.

 

Distribution
See capital distribution

 

Distribution in specie/Distribution in kind
This can happen if an investment has resulted in an IPO. A limited partner may receive its return in the form of stock or securities instead of cash. This can be controversial. 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. There can also be restrictions in the US about how soon a limited partner can sell the stock (Rule 144). This means that sometimes the share value has decreased by the time the limited partner is legally allowed to sell.

 

Dividend cover
A dividend is the amount of a company's profits paid to shareholders each year. Dividend cover is the calculation used to show how much of a company's after-tax profit is being used to finance the dividend. The formula is: Dividend Cover = (Earnings per share/Dividend per share).

 

Drawdown
When a venture capital firm has decided where it would like to invest, it will approach its own 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.

 

Due Diligence
Investing successfully in private equity at a fund or company level, involves thorough investigation. As a long-term investment, it is essential to review and analyse all aspects of the deal before signing. Capabilities of the management team, performance record, deal flow, investment strategy and legals, are examples of areas that are fully examined during the due diligence process.

E

EBIT
Abbreviation for earnings before interests and taxes. EBIT is an earnings indicator, determined from the net income before taxes, the net interest and extraordinary earnings. Eliminating these factors provides a more comparable statement on a company’s operative performance, independent of its individual equity structure.

 

Equity financing
Companies seeking to raise finance may use equity financing instead of or in addition to debt financing. To raise equity finance, a company creates new ordinary shares and sells them for cash. The new share owners become part-owners of the company and share in the risks and rewards of the company's business.

 

Evergreen fund
A fund in which the returns generated by its investments are automatically channelled back into the fund rather than being distributed back to investors. The aim is to keep a continuous supply of capital available for further investments.

 

Exit
Private equity professionals have their eye on the exit from the moment they first see a business plan. An exit is the means by which a fund is able to realise its investment in a company - by an initial public offering, a trade sale, selling to another private equity firm or a company buy-back. If a fund manager can't see an obvious exit route in a potential investment, then it won't touch it. Funds have the power to force an investee company to sell up so they can exit the investment and make their profit, but venture capitalists claim this is rare - the exit is usually agreed with the company's management team.

F

Facility Management

This is the total of all the activities necessary to manage the full functionality of a building and/or real estate asset and to resolve any unforeseen and unforeseeable problems that may arise.

The scope of Facility Management includes: monitoring, planning and coordination of maintenance, the management of spaces and furniture as a function of changes in the internal layout, the definition of plans for both the safety and security of the workplace, the selection of external suppliers to provide the support services necessary for the real-estate management process (move-ins, maintenance work, cleaning services, reception, etc.), the management of all maintenance activities, both ordinary (upon breakdown or routine) and extraordinary and, finally, the management of design activities and works management for the carrying out of the procedures necessary for performing extraordinary maintenance. 

 

Fair value
valuation reserves per share plus the equity per share

 

First time fund
This is the first fund a private equity firm ever raises - whether the firm is made up of managers who have never raised a fund before or, as in many cases, the firm is a spin-off, where managers from different, established funds have joined forces to create their own, new firm. In the first instance, the managers do not have a track record so investing with them can be very risky. In the second instance, the managers will have track records from their previous firms, but the investment is still risky because the individuals are unlikely to have worked together as a team before.

 

Follow-on funding
Companies often require several rounds of funding. If a private equity firm has invested in a particular company in the past, and then provides additional funding at a later stage, this is known as 'follow-on funding'.

 

Free-float
The sum of all shares of a company not held in firm hands, or, in other words, the marketable portion of a company’s stock

 

Fund of funds
A fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly. Fund of funds are specialist private equity investors and have existing relationships with firms. They may be able to provide investors with a route to investing in particular funds that would otherwise be closed to them. Investing in fund of funds can also help spread the risk of investing in private equity because they invest the capital in a variety of funds.

 

Fund raising
The process by which a private equity firm solicits financial commitments from limited partners for a fund. Firms typically set a target when they begin raising the fund and ultimately announce that the fund has closed at such-and-such amount. This may mean that no additional capital will be accepted. But sometimes the firms will have multiple interim closings each time they have hit particular targets (first closings, second closings, etc.) and final closings. The term cap is the maximum amount of capital a firm will accept in its fund.

G

Gatekeeper
Specialist advisers who assist institutional investors in their private equity allocation decisions. Institutional investors with little experience of the asset class or those with limited resources often use them to help manage their private equity allocation. Gatekeepers usually offer tailored services according to their clients' needs, including private equity fund sourcing and due diligence through to complete discretionary mandates. Most gatekeepers also manage funds of funds.

 

General partner
This can refer to the top-ranking partners at a private equity firm as well as the firm managing the private equity fund.

 

General partner contribution/commitment
The amount of capital that the fund manager contributes to its own fund. This is an important way for limited partners to ensure that their interests are aligned with those of the general partner. The US Department of Treasury recently removed the legal requirement of the general partner to contribute at least one per cent of fund capital, but this is still the usual contribution.

 

Goodwill

Goodwill is a special type of intangible asset that represents that portion of the entire business value that cannot be attributed to other income producing business assets, tangible or intangible

H

Hedge funds

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

 

High Yeld

All bonds are debt securities issued by organizations to raise capital for various purposes. When you buy a bond, you lend your money to the entity that issues it. In return for the loan of your funds, the issuer agrees to pay you interest and ultimately to return the face value (principal) when the bond matures or is called, at a specified date in the future known as the “maturity date” or “call date.”

 

Holding period
This is the length of time that an investment is held. For example, if Company A invests in Company B in June 1996 and then sells its stake in June 1999, the holding period is three years.

 

Hurdle Rate
See preferred return

 

Hurdle Rate

Go to “Preferred Return”.

I

IFRS
Accounting standards that will be obligatory for quoted companies in the European Union. The IFRS (International Financial Reporting Standards) are the European offshoot of the IAS (International Accounting Standards)

 

Incubator
An entity designed to nurture business ideas or new technologies to the point that they become attractive to venture capitalists. An incubator typically provides physical space and some or all of the services - legal, managerial, technical - needed for a business idea to be developed. Private equity firms often back incubators as a way of generating early-stage investment opportunities.

 

Initial public offering (IPO)
An IPO is the official term for 'going public'. It occurs when a privately held company - owned, for example, by its founders plus perhaps its private equity investors - lists a proportion of its shares on a stock exchange. IPOs are an exit route for private equity firms. Companies that do an IPO are often relatively small and new and are seeking equity capital to expand their businesses.

 

Institutional buy-out (IBO)
If a private equity firm takes a majority stake in a management buy-out, the deal is an institutional buy-out. This is also the term given to a deal in which a private equity firm acquires a company out right and then allocates the incumbent and/or incoming management a stake in the business.

 

Intangible Assets

An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset. A company brand name is considered to be an indefinite asset, as it stays with the company as long as the company continues operations. However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.

 

Internal rate of return (IRR)
This is the most appropriate performance benchmark for private equity investments. In simple terms, it is a time-weighted return expressed as a percentage. IRR uses the present sum of cash drawdowns (money invested), the present value of distributions (money returned from investments) and the current value of unrealised investments and applies a discount. The general partner's carried interest may be dependent on the IRR. If so, investors should get a third party to verify the IRR calculations.

 

Investor relations
Activities directed toward promoting relationships between a company and its existing or potential investors.

J - K

J - There are currently no terms available

L

Later stage finance
Capital that private equity firms generally provide to established, medium-sized companies that are breaking even or trading profitably. The company uses the capital to finance strategic moves, such as expansion, growth, acquisitions and management buy-outs.

 

Lead investor
The firm or individual that organises a round of financing, and usually contributes the largest amount of capital to the deal.

 

Leveraged buy-out (LBO)
The acquisition of a company using debt and equity finance. As the word leverage implies, more debt than equity is used to finance the purchase, eg 90 per cent debt to ten per cent equity. Normally, the assets of the company being acquired are put up as collateral to secure the debt.

 

Limited partners
Institutions or individuals that contribute capital to a private equity fund. LPs typically include pension funds, insurance companies, asset management firms and fund of fund investors.

 

Limited partnership
The standard vehicle for investment in private equity funds. A limited partnership has a fixed life, usually of ten years. The partnership's general partner makes investments, monitors them and finally exits them for a return on behalf the investors - limited partners. The GP usually invests the partnership's funds within three to five years and, for the fund's remaining life, the GP attempts to achieve the highest possible return for each of the investments by exiting. Occasionally, the limited partnership will have investments that run beyond the fund's life. In this case, partnerships can be extended to ensure that all investments are realised. When all investments are fully divested, a limited partnership can be terminated or 'wound up'.

 

Lock-up period
A provision in the underwriting agreement between an investment bank and existing shareholders that prohibits corporate insiders and private equity investors from selling at IPO.

 

LPX Europe
Measures the development of European LPE companies. The index is characterised by a high degree of diversification across LPE investment styles such as Buyout or Venture. The index construction methodology is manifested and published in the Guide to the LPX Equity Indices. The shares of DeA Capital are indexed in the LPX Europe.

M

M&A market
Merger & Acquisitions; market for negotiating businesses or shares of businesses to buyers and sellers.

 

Management buy-in (MBI)
When a team of managers buys into a company from outside, taking a majority stake, it is likely to need private equity financing. An MBI is likely to happen if the internal management lacks expertise or the funding needed to 'buy out' the company from within. It can also happen if there are succession issues - in family businesses, for example, there may be nobody available to take over the management of the company. An MBI can be slightly riskier than a MBO because the new management will not be as familiar with the way the company works.

 

Management buy-out (MBO)
A private equity firm will often provide finance to enable current operating management to acquire or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business - and the market it operates in - extremely well.

 

Management fee
This is the annual fee paid to the general partner. It is typically a percentage of limited partner commitments to the fund and is meant to cover the basic costs of running and administering a fund. Management fees tend to run in the 1.5 per cent to 2.5 per cent range, and often scale down in the later years of a partnership to reflect the GP's reduced workload. The management fee is not intended to incentivise the investment team - carried interest rewards managers for performance.

 

Management fee

This is the annual fee paid to the general partner. It is typically a percentage of limited partner commitments to the fund and is meant to cover the basic costs of running and administering a fund. Management fees tend to run in the 1.5 per cent to 2.5 per cent range, and often scale down in the later years of a partnership to reflect the GP’s reduced workload. The management fee is not intended to incentivise the investment team – carried interest rewards managers for performance.

 

Mezzanine financing
This is the term associated with the middle layer of financing in leveraged buy-outs. In its simplest form, this is a type of loan finance that sits between equity and secured debt. Because the risk with mezzanine financing is higher than with senior debt, the interest charged by the provider will be higher than that charged by traditional lenders, such as banks. However, equity provision – through warrants or options – is sometimes incorporated into the deal.

N

Net Asset Value (NAV)
value of all tangible and non-tangible assets of a company less its liabilities (equity); the net asset value per share is a key indicator used assessing the value growth of a quoted private equity company.

O

Overperformance commission

This is additional remuneration for the management company, due in the event that period results exceed a benchmark. The percentage is generally proportional to the increase in value of a share compared to an increase in of a benchmark called the "target yield". The target yield is the result that, when surpassed, triggers the payment of the overperformance commission to the investment management company (SGR). In other words, the "minimum" result is only the reference point for the calculation of the above-mentioned commission and not also a parameter representing the potentially achievable yield that investors can be induced to expect at the maturity of the fund.

P

Peer Group
A group of companies similar in terms of industrial sector, structure, products, and sales, used for comparison purposes.

 

Placement agent
Placement agents are specialists in marketing and promoting private equity funds to institutional investors. They typically charge two per cent of any capital they help to raise for the fund.

 

Portfolio
A private equity firm will invest in several companies, each of which is known as a portfolio company. The spread of investments into the various target companies is referred to as the portfolio.

 

Portfolio company
This is one of the companies backed by a private equity firm.

 

Preferred return
The minimum amount of return that is distributed to the limited partners until the time when the general partner is eligible to deduct carried interest. The preferred return ensures that the general partner shares in the profits of the partnership only after investments have performed well.

 

Preferred return
This is the minimum amount of return that is distributed to the limited partners until the time when the general partner is eligible to deduct carried interest. The preferred return ensures that the general partner shares in the profits of the partnership only after investments have performed well.

 

Preferred return

This is the minimum amount of return that is distributed to the limited partners until the time when the general partner is eligible to deduct carried interest. The preferred return ensures that the general partner shares in the profits of the partnership only after investments have performed well.

 

Private equity
This refers to the holding of stock in unlisted companies – companies that are not quoted on a stock exchange. It includes forms of venture capital and MBO financing.

 

Private markets
A term used in the US to refer to private equity investments.

 

Private placement
When securities are sold without a public offering, this is referred to as a private placement. Generally, this means that the stock is placed with a select number of private investors.

 

Public to private
This is when a quoted company is taken into private ownership – more recently by private equity firms. Historically, this has involved a large company selling one of its divisions. A new trend has been for whole companies to be bought out and subsequently delisted.

 

Public to private
When a quoted company is taken into private ownership – more recently by private equity firms. Historically, this has involved a large company selling one of its divisions. A new trend has been for whole companies to be bought out and subsequently delisted.

Q

R

Ratchets
This is a structure that determines the eventual equity allocation between groups of shareholders. A ratchet enables a management team to increase its share of equity in a company if the company is performing well. The equity allocation in a company varies, depending on the performance of the company and the rate of return that the private equity firm achieves.

 

Real estate (finance)

A term that indicates all activities connected with real property: buildings and similar structures, also including the land, air and subsoil, whose ownership confers the right to build.

 

Real Estate Investment Fund

A real estate fund is a collective investment management product, i.e., a type of mutual fund. It is set up as a "closed mutual fund" and is characterized by the specific object of the investment, must be at least 2/3 of the total value of the fund: real estate, real property rights and investments in real estate companies and other interests in property companies and other real estate investment funds (OICR).

 

Real estate investment trusts (reits)

REITs (Real Estate Investment Trusts) are the most traded US real estate funds. They are divided into three main categories: equity funds (which manage purchased or constructed properties); mortgage funds (which acquire and manage mortgage loans); and hybrid funds (that combine the characteristics of the first two types).

 

Recapitalisation
This refers to a change in the way a company is financed. It is the result of an injection of capital, either through raising debt or equity.

 

Return on Equity
Indicator used in assessing the business performance of a company; the profit delivered to the owners is expressed as a percentage of the equity available at the beginning of a financial year.

S

Second stage funding
The provision of capital to a company that has entered the production and growth stage although may not be making a profit yet. It is often at this stage that venture capitalists become involved in the financing.

 

Secondaries
The term for the market for interests in venture capital and private equity limited partnerships from the original investors, who are seeking liquidity of their investment before the limited partnership terminates. An original investor might want to sell its stake in a private equity firm for a variety of reasons: it needs liquidity, it has changed investment strategy or focus or it needs to re-balance its portfolio. The main advantage for investors looking at secondaries is that they can invest in private equity funds over a shorter period than they could with primaries.

 

Secondary buy-out
A common exit strategy. This type of buy-out happens when an investment firm's holding in a private company is sold to another investor. For example, one venture capital firm might sell its stake in a private company to another venture capital firm.

 

Secondary market
The market for secondary buy-outs. This term should not be confused with secondaries.

 

Securitization

The process by which a company packages its illiquid assets as a security. For example, when a company makes an initial public offering, it effectively packages the company's ownership into a certain number of stock certificates. Securities are backed by an asset, such as equity, or debt, such as a portion of a mortgage. Securitization allows a company access to greater funding to expand its operations or investments, or some other reason.

 

Seed capital
The provision of very early stage finance to a company with a business venture or idea that has not yet been established. Capital is often provided before venture capitalists become involved. However, a small number of venture capitalists do provide seed capital.

 

SGR

This is an acronym for “ Società di Gestione del Risparmio” or asset management company, a company authorized for the collective management of financial products (mutual funds) by the Consolidated Financial Act. The company's assets are kept separate from those of the fund. The asset management companies authorized in Italy are enrolled in a special register kept by the Bank of Italy.

 

SIIQ

Società di Investimento Immobiliare Quotata, Real estate investment model comparable to a REIT. SIIQ rules allow income tax exemptions for publicly held listed companies whose prevalent activity is the rental of properties and the equivalent, provided they meet a series of earnings and balance sheet requirements.

 

Sliding fee scale
A management fee that varies over the life of a partnership.

 

Sovereign Wealth Fund (SWF)

Funds owned by sovereign nations that invest the savings of an entire state, foreign exchange reserves, or excess liquidity.

 

Special Purpose Vehicle/Entity - SPV/SPE'

Also referred to as a "bankruptcy-remote entity" whose operations are limited to the acquisition and financing of specific assets. The SPV is usually a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt.

 

Spin-out firms
These are captive or semi-captive firms that gain independence from their parent organisations.

 

Stakeholders

All parties that have an interest, financial or otherwise, in a firm (e.g., stockholders, creditors, bondholders, employees, customers, management, the community, and the government) who also may benefit from the success of the company.

 

Star
Segment on the Milan Stock Exchange with high standards of transparency. DeA Capital belongs to this segment

 

Stock option
A security granting the purchase of a company’s stock at affixed price (or a price determined on the basis of a certain scheme). At DeA Capital it is a part of the managers’ emoluments.

 

Strategic investment
An investment that a corporation makes in a young company that can bring something of value to the corporation itself. The aim may be to gain access to a particular product or technology that the start-up company is developing, or to support young companies that could become customers for the corporation's products. In venture capital rounds, strategic investors are sometimes distinguished from venture capitalists and others who invest primarily with the aim of generating a large return on their investment. Corporate venturing is an example of strategic investing.

 

Subscription commission

This is the cost of entry into the fund and is usually commensurate to the gross amount of subscriptions, with a percentage that is fixed or, more often, decreases as the amount invested increases.

 

Syndication
The sharing of deals between two or more investors, normally with one firm serving as the lead investor. Investing together allows venture capitalists to pool resources and share the risk of an investment.

T

Take downs
See drawdown

 

Term sheet
A summary sheet detailing the terms and conditions of an investment opportunity.

 

Tombstone
When a private equity firm has raised a fund, or it wishes to announce a significant closing, it may choose to advertise the event in the financial press – the ad is known as a tombstone. It normally provides details of how much has been raised, the date of closing and the lead investors.

 

Track record
A record of performance by a company or an entrepreneur or manager

 

Turnaround
Turnaround finance is provided to a company that is experiencing severe financial difficulties. The aim is to provide enough capital to bring a company back from the brink of collapse. Turnaround investments can offer spectacular returns to investors but there are drawbacks: the uncertainty involved means that they are high risk and they take time to implement.

U -V

Use Classes

Use Classes –The separation of the uses of specific land and buildings into various categories, known in the industry as ‘use classes’.

Venture capital
The term given to early-stage investments. There is often confusion surrounding this term. Many people use the term venture capital very loosely and what they actually mean is private equity.

 

Vintage year
The year in which a private equity fund makes its first investment.

W - X - Y - Z

Write-downs
A reduction in the value of assets; must be disclosed in the profit and loss account.

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