Private Equity Definitions

IRR (Internal Rate of Return)

Annualized discount rate that sets the net present value of all cash flows to zero; measures deal or fund performance over time

MOIC (Multiple of Invested Capital)

Total value (realized + unrealized) divided by total invested capital

TVPI (Total Value to Paid-In)

Ratio of total value (NAV + distributions) to paid-in capital

DPI (Distributions to Paid-In)

Cumulative distributions returned to investors divided by paid-in capital; measures realized returns

RVPI (Residual Value to Paid-In)

Remaining unrealized value (NAV) divided by paid-in capital

PIC (Paid-In Capital)

Total capital contributed by investors to the fund

Committed Capital

Total capital pledged by investors to a fund

Called Capital (Drawn Capital)

Portion of committed capital that has been requested and invested by the GP

Uncalled Capital (Dry Powder)

Committed capital not yet drawn or invested

NAV (Net Asset Value)

Current value of the fund’s portfolio plus cash minus liabilities

Gross IRR

IRR calculated before fees

Net IRR

IRR after fees

Gross Multiple

Investment multiple calculated before fees and expenses

Net Multiple

Investment multiple after fees and expenses

PME (Public Market Equivalent)

Compares private equity performance to a public market benchmark

Kaplan-Schoar PME

Ratio of PE cash flows to public market equivalent cash flows using index returns

Direct Alpha

Annualized outperformance of private equity relative to public markets

J-Curve

Pattern where early negative returns are followed by positive returns as investments mature

Vintage Year

Year in which a fund begins investing; used for performance comparison

Investment Period

Timeframe during which a fund can deploy capital into new investments

Harvest Period

Phase when investments are exited and returns are realized

Exit Multiple

Multiple of exit value divided by entry value for an investment

Entry Multiple

Valuation multiple (e.g.

EBITDA Growth

Growth in earnings before interest

Revenue Growth

Increase in company sales over the investment period

Leverage (Debt/Equity)

Ratio of debt used relative to equity in a transaction

Loan-to-Value (LTV)

Ratio of debt to enterprise value of the investment

Cash-on-Cash Multiple

Ratio of cash distributions received to initial cash invested

Payback Period

Time required to recover initial investment from cash flows

Holding Period

Length of time an investment is held before exit

Realization Rate

Percentage of portfolio investments that have been exited

Distribution Yield

Annual distributions divided by invested capital or NAV

Capital Call Rate

Speed at which committed capital is drawn down

Recycling

Reinvestment of returned capital within the fund

Clawback

Provision requiring GP to return excess carried interest if performance declines

Carried Interest (Carry)

Share of profits (typically ~20%) allocated to the GP after returning capital

Hurdle Rate (Preferred Return)

Minimum return that must be achieved before GP earns carried interest

Catch-Up

Provision allowing GP to receive a larger share of profits after hurdle is met until agreed split is reached

Waterfall Structure

Rules governing distribution of cash flows between LPs and GP

European Waterfall

Carry paid after all capital is returned at fund level

American Waterfall

Carry paid deal-by-deal as exits occur

GP Commitment

Amount of capital the general partner invests in the fund

LP (Limited Partner)

Investor providing capital but not managing the fund

GP (General Partner)

Manager responsible for investment decisions and fund operations

Deal Flow

Pipeline of potential investment opportunities

Write-Off

Investment written down to zero value

Write-Down

Reduction in the valuation of an investment

Exit (Realization)

Sale or liquidity event of an investment

IPO (Initial Public Offering)

Exit via listing shares on a public exchange

Trade Sale

Sale of portfolio company to another company

Secondary Sale

Sale to another financial sponsor

Recapitalization

Refinancing event that may return capital to investors

Co-Investment

Direct investment alongside a PE fund

Fundraising Period

Timeframe during which the fund raises commitments from investors

Fund Size

Total committed capital raised by the fund