A set of accounting standards published by the Financial Accounting Standards Board (FASB) that provides guidance on the valuation of financial instruments. ASC-820, also known as FASB ASC 820 or the "Fair Value Measurement" standard, is relevant to private equity secondary markets as it establishes a framework for determining the fair value of private equity fund interests and other securities.
An individual or entity that meets certain income or net worth requirements, as defined by the Securities and Exchange Commission (SEC), and is eligible to invest in certain types of private securities offerings, such as private equity funds. The definition is explicitly laid out by the SEC here: https://www.ecfr.gov/current/title-17/chapter-II/part-230#230.501
An electronic platform that allows buyers and sellers to trade securities and other financial instruments outside of traditional exchanges.
A method of distributing the proceeds of a private fund such that the General Partner (GP) receives carried interest on each individual investment rather than on the portfolio as a whole.
Refers to the group of laws, regulations, and procedures used to uncover the earning of illicit funds as legitimate income. Money laundering seeks to conceal the origin of funds generated from criminal activity, such as tax evasion, drug trafficking and public corruption, among others.
A ledger of the investors that are approved to buy or sell a specific fund’s interest on the secondary market. General Partners (GPs) create and maintain these lists so that all investors conform to the same compliance standards.
A private equity fund that is not bound to specific investments or sectors when it raises capital. Blind pool funds have the flexibility to invest in a wide range of opportunities as they become available.
A legal entity or structure that is used to prevent an investor from exceeding certain thresholds of ownership or control in a private equity fund or portfolio company. Blockers are often used by private equity firms to comply with regulatory requirements or to meet the investment guidelines of certain investors, such as pension funds or endowments. For example, a private equity firm may use a blocker to prevent a single investor from owning more than a certain percentage of the fund or to prevent the fund from exceeding a certain level of ownership in a portfolio company.
The process of registering and disclosing information about securities offerings in order to comply with state securities laws. These laws, also known as "blue sky laws," are designed to protect investors by requiring companies to provide specific information about the securities they are offering.
A financial services firm that acts as both a broker and a dealer, facilitating the buying and selling of securities and other financial instruments. Broker-dealers may be involved in the secondary market for private equity fund interests, acting as intermediaries between buyers and sellers and providing a range of services to facilitate secondary transactions.
The acquisition of a controlling stake in a company, typically through the use of private equity funds. Buyouts may involve the purchase of a majority of the company's shares or the acquisition of a significant portion of the company's assets.
A document that reflects the financial activity of an investor's account within a private equity fund. The capital account statement typically shows the investor's capital contributions, the fund's investment activity, any distributions or returns received by the investor, and any fees or expenses charged by the fund. The capital account statement is typically prepared by the general partner (GP) of the fund and is provided to the investor on a regular basis, such as quarterly or annually.
A request made by a private equity fund manager to its investors to contribute additional capital to the fund, typically to fund new investments or to meet expenses.
The total amount of money that an investor has agreed to contribute to a private equity fund over the life of the fund.
The amount of money that an investor contributes to a private equity fund
A table that shows the ownership structure of a company, including the amount of equity held by each shareholder and the percentage of ownership represented by that equity.
The share of profits that a private equity fund manager receives as compensation for managing the fund. Carry is typically a percentage of the profits generated by the fund and is paid to the fund manager after the investors in the fund have received their preferred returns.
A type of private equity fund that is formed to acquire the remaining assets of an existing fund that has reached the end of its investment period. This can happen when the original fund has invested in all of the opportunities it was set up to pursue or when it has reached the end of its designated lifespan. A continuation fund allows the general partner (GP) of the original fund to continue managing the remaining assets and to potentially generate additional returns for the limited partners (LPs) who have invested in the fund. Continuation funds can be an attractive option for LPs who are looking to hold on to their investments in a particular fund and to continue receiving returns from those investments. They can also provide an opportunity for GPs to continue managing the assets and to potentially generate additional fees.
A secure online platform where parties to a transaction can access and review confidential information related to the transaction. Data rooms are commonly used in the context of private equity secondary markets to provide buyers with access to information about the fund and its underlying assets, as well as any other relevant details.
A member of a private equity partnership who fails to meet their financial obligations to the partnership, such as failing to contribute the required amount of capital or failing to pay carried interest. This can have serious consequences for the partnership and the remaining members, as it can impact the partnership's financial stability and ability to fund and manage its portfolio companies. Limited partners who default may also face legal consequences and may be required to pay damages or other penalties.
Payment that is due at a future date, rather than being paid upfront. In the context of private equity, deferred consideration may be used as part of the purchase price in an acquisition, with the intention of reducing the upfront cost of the deal.
A type of trust that is recognized under Delaware law and used to hold real estate or other assets. DSTs are often used in the context of private equity real estate funds as a way to hold and manage the fund's assets.
The direct purchase of individual assets or portfolios of assets from a private equity fund, rather than purchasing an interest in the fund itself. This allows the buyer to take ownership of specific assets within the portfolio and to potentially negotiate a discounted price for those assets. Direct secondaries can be an attractive option for investors who want to access specific private companies or assets within a private equity fund, rather than investing in the fund as a whole. They can also provide liquidity for sellers who are looking to exit their investments in a private equity fund.
The difference between the price of a private equity fund interest being offered on the secondary market and the fund's net asset value (NAV). The NAV of a private equity fund represents the value of the fund's underlying assets, minus any liabilities. A discount to NAV may indicate that the fund interest is being offered at a lower price than the value of the underlying assets, and may be used as a negotiating point in secondary transactions.
The payment of profits or capital to the investors in a private equity fund. Distributions may be made on a regular basis or as the fund generates profits from its investments.
A measure of the return on an investment, calculated as the ratio of the total distributions received from an investment to the amount of capital invested. DPI is commonly used to evaluate the performance of private equity funds and may be used as a benchmark in the secondary market for private equity fund interests.
A thorough and detailed investigation or audit of a potential investment. Typically, in secondary markets these are used to establish a price on a fund interest (i.e., a discount or premium to NAV). Due diligence often consists of financial statements, capital accounts, and other relevant documents.
A method of distributing the profits from a private equity fund among the various stakeholders, including the investment manager, the investors, and any other parties involved in the fund. The European waterfall is similar to the American waterfall in that it follows a tiered structure, with different percentage splits applied at different thresholds. However, the main difference between the two is that under the European waterfall, the investment manager is not entitled to receive any carried interest until the investors have received a predetermined rate of return on their investment.
The sale or disposition of an investment, such as the sale of a company in which a private equity fund has invested. Exits may be realized through an initial public offering (IPO), a sale to another company, or other means.
An extension is the process of extending the term of a private equity fund beyond its original expiration date. Private equity funds typically have a term of 10 years, but they may be extended if the fund's manager and investors agree to do so. Extensions can occur for a variety of reasons, including the need to complete investments that are already in progress, the desire to hold onto successful investments for a longer period of time, or the lack of attractive new investment opportunities. Extensions are typically granted for a limited period of time, and the terms of the extension may be negotiated between the fund's manager and its investors.
A document that must be filed with the Securities and Exchange Commission (SEC) whenever an issuer of securities is selling those securities to accredited investors. The purpose of the Form D is to provide basic information about the offering, including the name and address of the issuer, the type of securities being offered, and the amount of money being raised. The Form D must be filed within 15 days of the first sale of securities in the offering. Form D is a key disclosure document for private placements and is commonly used in the secondary market for private equity investments.
A collective investment vehicle that pools capital from multiple investors and uses the capital to make a variety of investments. Private equity funds invest in the equity of private companies, with the goal of realizing capital appreciation through the growth of the underlying businesses.
A third-party service provider that performs a range of administrative and support services for private equity funds and other investment vehicles. Fund administrators may handle tasks such as accounting, tax compliance, reporting, and other functions. In the context of secondary trading, fund administrators may be involved in the valuation of a fund's assets and the calculation of its net asset value (NAV) for the purposes of pricing secondary transactions.
The financial reports that are prepared by the general partner (GP) of a private equity fund to provide information about the financial performance and position of the fund. These statements typically include the balance sheet, income statement, and statement of cash flows. The balance sheet reflects the fund's assets, liabilities, and equity at a specific point in time. The income statement shows the fund's revenues and expenses over a specific period of time, such as a year or quarter. The statement of cash flows shows the fund's cash inflows and outflows during the same period. Fund financial statements are typically prepared in accordance with generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) and are provided to the limited partners (LPs) of the fund on a regular basis, such as quarterly or annually.
A private equity fund that invests in other private equity funds, rather than directly in companies. Fund of funds may offer investors access to a diversified portfolio of private equity investments, but may also result in additional fees due to the multiple layers of management.
The financial commitment made by the general partner (GP) of a private equity fund to invest a certain amount of capital in the fund. This is typically a percentage of the total fund size and is intended to align the interests of the GP with those of the limited partners (LPs) who have invested in the fund. GPs are typically responsible for managing the investments made by the fund and for generating returns for the LPs. The GP commitment is meant to demonstrate the GP's commitment to the success of the fund and to the interests of the LPs.
A type of secondary transaction in which the private equity fund's general partner initiates the sale of fund interests. GP-led secondaries may be used to allow investors to exit their investments before the end of the fund's life, or to allow the fund to raise additional capital.
The entity responsible for managing a private equity fund and making investment decisions on behalf of the fund's investors. The GP is typically compensated through a combination of management fees and carried interest.
A set of standards and guidelines for financial reporting in the United States. GAAP are developed and maintained by the Financial Accounting Standards Board (FASB) and are intended to provide a common framework for preparing financial statements and reporting financial information.
A type of private equity fund that focuses on investing in growing companies that have reached a stage of development beyond the start-up phase, but have not yet reached maturity. Growth equity funds typically target companies that have demonstrated a proven business model and are seeking capital to fund their expansion. These funds typically take an active role in the companies they invest in, providing not only financial capital, but also strategic and operational support. The goal of a growth equity fund is to generate returns for its investors by helping the companies it invests in grow and become more valuable.
An individual with a high level of net worth, typically defined as having at least $1 million in investable assets. High net worth individuals may be eligible to invest in private equity funds and other alternative investments, and may also participate in the secondary market for private equity fund interests.
The minimum rate of return that must be achieved before the private equity fund GP is entitled to receive carry. The hurdle rate is typically specified in the fund's carry waterfall and may be a fixed rate or a performance-based rate.
A private equity fund that focuses on investing in infrastructure assets, such as transportation, energy, and utilities. Infrastructure funds may invest in a variety of projects, such as toll roads, pipelines, and power plants, and may also participate in the secondary market for private equity fund interests.
An organization that manages and invests funds on behalf of other parties, such as pension funds, endowments, foundations, and other non-profit organizations. Institutional investors are a significant source of capital for private equity funds, and may also participate in the secondary market for private equity fund interests.
A measure of the performance of an investment, calculated as the annualized rate of return that is required to make the net present value (NPV) of all cash flows from the investment equal to zero. IRR is commonly used to evaluate the performance of private equity funds and may be used as a benchmark in the secondary market for private equity fund interests.
A set of international accounting standards that provide a common framework for preparing financial statements and reporting financial information. These standards are developed and maintained by the International Accounting Standards Board (IASB) and are used by organizations around the world to ensure the consistent and transparent presentation of financial information. The adoption of IFRS allows investors and other stakeholders to compare the financial performance of different companies, regardless of their location or industry.
The period of time during which a private equity fund is actively making investments and committing capital. The investment period is typically followed by a holding period, during which the fund holds its investments and seeks to realize returns through the growth of the underlying businesses.
The guiding principles that a private equity fund uses to identify and evaluate investment opportunities. The investment thesis may include the types of industries or sectors in which the fund is interested, the types of companies it targets, and the types of returns it seeks to achieve.
A graphical representation of the performance of a private equity fund over time. The J-curve typically shows a downward trend in the early years of the fund, as the fund incurs costs and may not yet have realized any exits or distributions. As the fund matures and begins to realize exits and make distributions, the curve begins to rise, eventually reaching a positive slope. The J-curve is a visual representation of the fact that private equity investments tend to have a longer investment horizon and may not generate positive returns until several years into the fund's life
A tax form that is used to report a limited partner's (LP) share of the income, deductions, credits, and other tax items of a partnership, including a private equity fund. The K-1 is issued by the general partner (GP) of the fund and is used by the LP to report their share of the fund's income and other tax items on their individual income tax return. The K-1 is typically issued on an annual basis and includes information about the LP's share of the fund's income, deductions, credits, and other tax items, as well as any distributions or other payments received from the fund.
The process of identifying and verifying the identity of a customer or client. This typically involves collecting and verifying personal information about the customer, such as their name, address, and other identifying information, as well as verifying the customer's identity through the use of documents or other forms of identification. The goal of KYC is to ensure that the customer is who they claim to be and to identify any potential risks or concerns associated with the customer.
An online platform that is used to provide information and resources to the limited partners (LPs) of a private equity fund. LP portals are typically used by the general partner (GP) of the fund to communicate with LPs and to provide them with access to information about the fund's investments, financial performance, and other relevant matters. LP portals may include features such as online access to fund documents, financial statements, and other reports, as well as tools for managing investments and accessing support resources.
A legal document that outlines the terms and conditions of a private equity partnership, including the rights and responsibilities of the limited partners (LPs) and the general partner (GP). The LPA typically specifies the structure and governance of the partnership, the management and operation of the partnership's assets, the allocation of profits and losses, and the terms of dissolution and winding up of the partnership. The LPA is a key document that sets forth the terms of the private equity partnership and serves as the cornerstone of the relationship between the LPs and the GP.
An investor in a private equity fund who has limited liability for the fund's debts and obligations. Limited partners do not participate in the management of the fund and are not entitled to carry.
The ability to buy or sell an asset easily and quickly, without affecting the asset's price. Private equity investments are typically considered less liquid than publicly traded securities, as it may be more difficult to find buyers for private equity fund interests on the secondary market.
The fee that a private equity fund manager charges for managing the fund's assets. The management fee is typically a percentage of the fund's assets under management and is used to cover the fund's operating expenses.
The price at which an asset would be expected to trade on the open market, based on supply and demand dynamics. In the context of secondary trading of private equity funds, market value may be used to determine the price (i.e., premium or discount to NAV) at which fund interests can be bought or sold.
A small ownership interest in a company, typically less than 50%. Private equity funds may take minority stakes in companies as a way to participate in the growth of the underlying business without assuming full ownership.
The process of tracking the performance and progress of a private equity fund's investments and ensuring that they are meeting the fund's objectives. Monitoring may involve regular communication with portfolio companies, review of financial reports and other information, and participation in key decision-making processes.
A measure of the return on an investment, calculated as the ratio of the final value of the investment to the amount of capital invested. MOIC is commonly used to evaluate the performance of private equity funds and may be used as a benchmark in the secondary market for private equity fund interests.
A private equity fund that focuses on investing in natural resources, such as oil, gas, minerals, and timber. Natural resources funds may invest in a variety of projects, such as exploration, development, and production, and may also participate in the secondary market for private equity fund interests.
The value of a private equity fund's assets, minus its liabilities. The NAV is typically calculated on a periodic basis, such as quarterly or annually, and is used to determine the value of each investor's stake in the fund.
A legal agreement in which one party agrees not to disclose or use confidential information provided by another party. Non-disclosure agreements are commonly used in the context of private equity secondary markets to protect the confidentiality of financial and other sensitive information that may be shared during the course of a transaction.
A private equity fund that focuses on investing in companies or assets that are undervalued or underperforming, with the goal of turning them around and realizing capital appreciation. Opportunity funds may also be called turnaround funds or value-add funds.
A company that serves as the foundation for a private equity fund's investments, typically by acquiring or merging with other companies and building a portfolio of assets. Platform companies may be used as a way to scale up a private equity fund's operations and make additional acquisitions more efficiently.
A company in which a private equity fund has invested. Private equity funds typically seek to add value to their portfolio companies through operational improvements, strategic planning, and other means.
The sale of a group of private equity fund interests as a package, rather than individually. This can involve the sale of multiple interests in a single fund or the sale of interests in multiple funds that are managed by the same general partner (GP). Portfolio deals can be attractive to buyers because they offer the opportunity to acquire a diverse range of private equity assets in a single transaction, potentially at a discounted price. They can also be attractive to sellers because they provide an opportunity to exit multiple investments at once, rather than selling them individually. Portfolio deals can be structured in a variety of ways, such as through a single transaction or through a series of smaller transactions. They can also involve the transfer of the underlying assets of the fund or the transfer of the fund interests themselves.
The minimum rate of return that a private equity fund must pay to its investors before the fund manager is entitled to receive carry. The preferred return is typically specified in the fund's carry waterfall and may be a fixed rate or a performance-based rate.
The difference between the price of a private equity fund interest being offered on the secondary market and the fund's net asset value (NAV). A premium to NAV may indicate that the fund interest is being offered at a higher price than the value of the underlying assets, and may be used as a negotiating point in secondary transactions.
The market in which securities or other assets are issued and initially sold to investors. In the context of private equity, the primary market is the market in which new private equity funds are created and investors commit capital to the fund.
The fund strategy that includes investments in private companies and other private assets, with the goal of realizing capital appreciation through the growth of the underlying businesses or changes in asset value, such as natural resources.
A measure of the performance of a private equity fund, calculated as the equivalent public market value of the fund's underlying assets. PME is used as a benchmark to compare the performance of a private equity fund to public market benchmarks, such as the S&P 500. PME may be used in the secondary market for private equity fund interests as a way to compare the performance of different funds and to determine the value of fund interests being offered for sale
A legal agreement outlining the terms and conditions of a purchase transaction, including the price, payment terms, and any other relevant details. In the context of private equity secondary markets, purchase agreements may be used to document the terms of a secondary transaction involving private equity fund interests.
A platform that is used to facilitate the buying and selling of private equity fund interests. QMS platforms may offer a variety of services, such as due diligence support, document preparation, and other support services to help facilitate the transaction. QMSs can allow funds to transact up to 10% of their fund interest without being deemed a Publicly Traded Partnership (PTP) as defined by the Internal Revenue Service (IRS).
A person or entity that is eligible to invest in private equity funds or other alternative investments, as defined by the US Securities and Exchange Commission (SEC). To qualify as a qualified purchaser, an individual must have at least $5 million in investments, and an entity must have at least $25 million in investments. Qualified purchasers are subject to fewer restrictions on their ability to invest in private equity funds and other alternative investments than retail investors.
