Glossary

Glossary on Private Equity

CARRIED INTEREST

Equivalent to a performance fee, this represents a share of the capital profits that will accrue to the Investment manager, after achievement of an agreed hurdle rate.

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortisation.

ENTERPRISE VALUE (‘EV’)

This is the aggregate value of a company’s entire issued share capital and net debt.

EXPANSION CAPITAL

The provision of capital to an existing, established business, to finance organic growth or acquisitions – sometimes also known as venture capital.

HEDGING

Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that is expected to perform in the opposite way.

IPO (INITIAL PUBLIC OFFERING)

An offering by a company of its share capital to the public with a view to seeking an admission of its shares to a recognised stock exchange.

IRR (INTERNAL RATE OF RETURN)

The annual internal rate of return received by an investor in a fund. It is calculated from cash drawn from and returned to the investor together with the residual value of the fund unit.

LBO (LEVERAGED BUYOUT)

The purchase of all or most of a company’s share capital, often involving its managers, funded mainly by borrowings often secured on the company’s assets, resulting in a post-financing capital structure of the company that is geared.

LP (LIMITED PARTNERSHIP)

An English limited partnership includes one or more general partners, who have responsibility for managing the business of the partnership and unlimited liability, and one or more limited partners, who do not participate in the operation of the partnership and whose liability is ordinarily capped at any capital and loan contribution to the partnership. In typical fund structures, the general partner receives a priority profit share ahead of distributions to limited partners. In addition, a limited partner designated as the 'founder partner' will share in the profits of the partnership alongside the other limited partners once limited partners have been returned all loan contributions plus a hurdle as agreed with the partnership.

MBI (MANAGEMENT BUY-IN)

A change of ownership, where an incoming management team raises financial backing, normally a mix of equity and debt, to acquire a business.

MBO (MANAGEMENT BUYOUT)

A change of ownership, where the incumbent management team raises financial backing, normally a mix of equity and debt, to acquire a business it manages.

P2P (PUBLIC TO PRIVATE)

The purchase of all of a listed company’s shares using a special-purpose vehicle funded with a mixture of debt and unquoted equity.

PREFERRED RETURN

A preferential rate of return on an individual investment or a portfolio of investments.

QUOTED COMPANY

Any company whose shares are listed or traded on a recognised stock exchange.

UNQUOTED COMPANY

Any company whose shares are not listed or traded on a recognised stock exchange.

VENTURE CAPITAL

Investing in companies at a point in that company’s life cycle that is either at the concept, start-up or early stage of development.

Glossary on Investment Trusts

DISCOUNT

Investment trust shares frequently trade at a discount to NAV. This occurs when the share price is less than the NAV. In this circumstance, the price that an investor pays or receives for a share would be less than the value attributable to it by reference to the underlying assets. The discount is the difference between the share price and the NAV, expressed as a percentage of the NAV. For example, if the NAV was 1,650 pence and the share price was 1,485 pence, the discount would be 10%.

NET ASSET VALUE PER SHARE (‘NAV’)

This is the value of the Company’s assets attributable to one Ordinary share. It is calculated by dividing ‘shareholders’ funds’ by the total number of Ordinary shares in issue. For example, as at 31 December 2016, shareholders’ funds were £615,756,000 and there were 37,324,698 Ordinary shares in issue; the NAV was therefore 1,649.7 pence per Ordinary share. Shareholders’ funds are calculated by deducting current and long-term liabilities, and any provision for liabilities and charges, from the Company’s total assets.

PREMIUM

A premium occurs when the share price is higher than the NAV and investors would therefore be paying more than the value attributable to the shares by reference to the underlying assets. For example, if the share price were 1,815 pence and the NAV were 1,650 pence, the premium would be 10%.

TOTAL RETURN

The total return to shareholders comprises both changes in the Company’s NAV or share price and dividends paid to shareholders; it is calculated on the basis that all historic dividends have been reinvested in the Company’s shares on the date the dividend is paid.