A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

GLOSSARY

Realisation Realisation is the sale, redemption or repayment of an investment, in whole or in part, or the insolvency of an investee company, where no significant return to the private equity fund is envisaged

Financing made available to an existing business which has experienced trading difficulties, with a view to re-establishing prosperity.

Rescue (or turnaround)

SCPC “Société en Commandite de Placements Collectifs” Swiss private equity vehicle

An investment where a fund buys either, a portfolio of direct investments of an existing private equity fund or limited partner’s positions in these funds. A market or exchange in which securities are bought and sold following their initial sale. Investors in the primary market, by contrast, purchase shares directly from the issuer.

Secondary investment

Secondary market

SICAR “ Société d’Investissement à Capital A Risque “

Investment company in risk capital, Luxembourg private equity vehicle SIF Specialised Investment Fund Luxembourg vehicle SOPARFI “ Société de Participation Financière “ Financial participation company, Luxembourg vehicle Subscription agreement Agreement further to which one or more investors undertake to subscribe to, and whereby the competent corporate body (or the members thereof) undertakes to decide (or to vote in favour of), an upcoming issue by one or more target companies of shares, bonds, convertible bonds, warrants or other financial instruments to such investors. The agreement will set out the type and amount of instruments to be issued, the representations and warranties, the indemnification in the event of misrepresentation and may also include post-closing covenants (such as further investment obligations or restrictions on the transfer of the instruments that will be acquired). SV Securitisation Vehicle, Luxembourg

A group of venture capitalists jointly investing in an investee company. Where an investment is too large, complex or risky, the lead investor may seek other financiers to share the investment. This process is known as syndication. Professional equity co-invested with the entrepreneur to fund an early- stage (seed and start-up) or expansion venture. Offsetting the high risk the investor takes is the expectation of higher than average return on the investment. Venture capital is a subset of private equity.

Syndication or syndicated investment

Venture capital

Vintage year The year of fund formation and first drawdown of capital. Waterfall The distribution waterfall sets out the order and terms by which distributions are paid to various partners in a limited partnership

In the European waterfall model, the GP is not paid carry until LPs receive distributions equal to their total contributed capital and a preferred return.

In the US waterfall model, the GP’s carry is calculated and paid out on a deal by deal basis as each transaction is realised. The split of carry between the GP and LPs is rebalanced either at each subsequent transaction and/or at the end of the fund’s life. Write-off The write-down of a portfolio company’s value to zero. The value of the investment is eliminated and the return to investors is zero or negative.

Source: CACEIS, adapted from EVCA and NVCA glossaries, 2009

A thorough understanding of PE | page 95