Private equity glossary

A

Accrued interest

Interest that has been earned on an instrument but not yet paid or capitalised. Calculated daily based on the principal, rate and day-count basis. See how interest is calculated.

Alphabet shares

Multiple classes of ordinary shares (Ord A, Ord B, Ord C, etc.) used to give different shareholder groups distinct economic or voting rights within the same company. See our guide to ordinary shares.

Anniversary (compounding)

The annual date on which accrued interest is capitalised — added to the principal — under annual compounding. Typically the anniversary of the original transaction date. See how interest is calculated.

B

Basis points (bps)

One hundredth of a percentage point. 100 bps = 1%. Used to express small differences in interest rates or returns. 8.5% = 850 bps

C

Cap table (capitalisation table)

A record of who owns what in a company — listing all shareholders, their instrument holdings, and their percentage ownership. In PE, typically maintained per entity at every level of the fund structure. See PE cap tables in Excel.

Carried interest (carry)

The share of profits paid to the fund manager (GP) above a specified return threshold (the hurdle rate). Typically 20% of profits above the hurdle, subject to catch-up and clawback provisions. See carried interest and the fund waterfall.

Catch-up

A mechanism whereby the GP receives a disproportionate share of distributions once the hurdle rate has been met, until the GP has received its full carried interest entitlement. See carried interest and the fund waterfall.

Clawback

A provision requiring the GP to return previously received carried interest if the fund's overall returns fall below the hurdle rate by the end of the fund's life. See carried interest and the fund waterfall.

Co-investment vehicle

A separate entity that allows certain investors (typically LPs or the GP) to invest alongside the main fund in a specific deal, usually on a no-fee, no-carry basis. See co-investment vehicles.

Compounding frequency

How often accrued interest is capitalised into the principal. Common frequencies: annual (once per year on anniversary), quarterly (every calendar quarter), or continuous. See how interest is calculated.

Coupon

The interest rate payable on preference shares or loan notes. May be expressed as a percentage per annum. Sometimes called the "dividend rate" on prefs. See our guide to preference shares.

Cumulative preference shares

Preference shares where unpaid dividends accumulate and must be paid before any distribution to ordinary shareholders. Most PE prefs are cumulative. See our guide to preference shares.

D

Day-count basis

The convention used to calculate the number of days in an interest period relative to a year. Common bases: Act/365 (actual days over 365), Act/360 (actual days over 360), 30/360 (assumes 30-day months). See how interest is calculated.

DPI (distributions to paid-in)

The ratio of cumulative distributions returned to investors relative to the capital they contributed. A DPI of 1.0x means investors have received back their original investment. DPI = Cumulative distributions ÷ Paid-in capital. See DPI, TVPI and RVPI explained.

Drawdown

A call on committed capital from LPs to fund an investment or pay expenses. Also used to describe an advance under a shareholder loan facility. See PE fund structures.

Dry powder

Committed but uncalled capital available for future investments. The difference between total commitments and capital drawn to date. See PE fund structures.

E

Enterprise value (EV)

The total value of a business, including both equity and debt. EV = Equity value + Net debt. The starting point for an equity waterfall calculation. See the equity waterfall.

Equity value

The value attributable to equity holders after deducting debt, preference shares and shareholder loans from enterprise value. Distributed through the waterfall to ordinary shareholders. See the equity waterfall.

Equity waterfall

The order in which sale or refinancing proceeds are allocated: senior debt first, then shareholder loans with interest, then preference shares with accrued coupon, and finally ordinary shares. See the equity waterfall.

EV bridge

A reconciliation from enterprise value to equity value, typically showing: EV less net debt, less SHL principal and interest, less pref principal and coupon, equals equity value. See the equity waterfall.

F

Fully diluted ownership

Ownership percentages calculated assuming all options, warrants and convertible instruments have been exercised. Gives the most complete picture of each shareholder's potential stake. See our guide to ordinary shares.

Fund (LP fund)

The main investment vehicle, typically structured as a limited partnership (SCSp in Luxembourg, LP in the UK). Pools capital from LPs and invests through SPVs into portfolio companies. See PE fund structures.

G

GP (general partner)

The fund manager entity that manages the fund, makes investment decisions and is entitled to management fees and carried interest. Has unlimited liability in the partnership. See PE fund structures.

Gross IRR

The internal rate of return on invested capital before deducting management fees and carried interest. Measures the fund's investment performance at the portfolio level. Gross IRR = IRR of cash flows between fund and portfolio companies. See IRR vs money multiple.

H

HoldCo (holding company)

An intermediate company in the acquisition structure, sitting between TopCo and OpCo. Often used to hold debt or create a clean separation between the acquisition vehicle and the trading business. See PE fund structures.

Hurdle rate (preferred return)

The minimum annual return that LPs must receive before the GP is entitled to carried interest. Typically 8% per annum, compounding annually. See carried interest and the fund waterfall.

I

IRR (internal rate of return)

The annualised rate of return that makes the net present value of all cash flows equal to zero. The standard measure of fund performance. See also: Gross IRR, Net IRR. See IRR vs money multiple.

J

J-curve

The pattern of fund returns over time: negative in early years (as fees are paid and investments are made at cost) before turning positive as portfolio companies are realised at a gain. See DPI, TVPI and RVPI explained.

L

Liquidation preference

The right of preference shareholders to receive their invested capital (plus accrued coupon) before ordinary shareholders receive anything in a sale or winding-up. See our guide to preference shares.

Look-through ownership

Tracing ownership from the ultimate investor (LP) through all intermediate entities (Fund, SPV, MasterCo, LuxCo) to the portfolio company. Used for regulatory reporting and conflict checks. See PE fund structures.

LP (limited partner)

An investor in the fund who commits capital but has limited liability and no role in day-to-day management. Typically pension funds, endowments, family offices or fund-of-funds. See PE fund structures.

LuxCo

A Luxembourg entity (typically a Sarl) used as a per-deal SPV between MasterCo and TopCo. Provides tax-efficient channelling of equity and debt into the acquisition structure. See Luxembourg fund structures.

M

Management fee

The annual fee paid to the GP for managing the fund, typically 1.5–2.0% of committed capital during the investment period and 1.5–2.0% of invested capital thereafter. See PE fund structures.

MasterCo

The master holding entity (typically a Luxembourg Sarl) sitting between the Fund and per-deal LuxCos. Consolidates fund-level equity and debt before channelling it to individual deals. See Luxembourg fund structures.

MIP (management incentive plan)

An arrangement giving portfolio company management a share of equity upside, typically through a separate share class (e.g. Ord B) held via a nominee vehicle. See rollover and sweet equity.

MoM (money multiple / money-on-money)

Total value (realisations plus unrealised value) divided by total invested capital. A MoM of 2.5x means the investment has returned 2.5 times the capital invested. MoM = (Distributions + Residual value) ÷ Invested capital. See IRR vs money multiple.

N

Net IRR

The internal rate of return to LPs after deducting management fees and carried interest. The return an LP actually receives. Always lower than gross IRR. See IRR vs money multiple.

Nominee

An entity that holds shares on behalf of underlying beneficiaries. In PE, often used for MIP vehicles where a nominee company holds pooled management equity. See PE fund structures.

O

OpCo (operating company)

The trading business — the company that actually runs the business, employs people and generates revenue. Sits at the bottom of the acquisition structure. See PE fund structures.

Ordinary shares

The residual equity in a company. Ordinary shareholders receive what remains after all debt, preference shares and shareholder loans have been repaid. Typically carry voting rights. See our guide to ordinary shares.

P

Paid-in capital

The total amount of capital that LPs have actually contributed to the fund (as opposed to committed but uncalled capital). See DPI, TVPI and RVPI explained.

Pari passu

Latin for "on equal footing". Instruments ranking pari passu have equal priority in the waterfall — they share proceeds pro rata rather than one being paid before the other. See the equity waterfall.

Participating preference shares

Prefs that receive both their liquidation preference and a share of the remaining equity proceeds. More favourable to the holder than non-participating prefs. See our guide to preference shares.

PIK (payment in kind)

Interest that is not paid in cash but instead added to the principal balance. The standard treatment for PE preference shares and shareholder loans, where interest compounds rather than being paid out. See PIK interest explained.

Preference shares (prefs)

Shares that rank ahead of ordinary shares in the waterfall but behind debt. Carry a fixed coupon rate and must be repaid (with accrued interest) before ordinary shareholders receive anything. See our guide to preference shares.

R

Ratchet

A mechanism that adjusts management's equity percentage based on fund returns. If the fund achieves a target MoM, management's share increases — often from a base of 5–10% up to 15–20%. See rollover and sweet equity.

RVPI (residual value to paid-in)

The ratio of the fund's unrealised portfolio value to paid-in capital. Represents the value still to be realised. RVPI = Unrealised value ÷ Paid-in capital. See DPI, TVPI and RVPI explained.

S

SCSp (Société en Commandite Spéciale)

A Luxembourg special limited partnership, the most common vehicle for European PE funds. Offers tax transparency (no entity-level tax) and contractual flexibility. See Luxembourg fund structures.

Shareholder loan (SHL)

A loan from the fund (or its SPV) to the portfolio company, sitting between senior debt and preference shares in the waterfall. Accrues interest, typically PIK. See our guide to shareholder loans.

SPV (special purpose vehicle)

A single-purpose entity created to hold a specific investment or group of investments. In PE, the chain of SPVs between the fund and portfolio company (MasterCo, LuxCo, etc.). See PE fund structures.

Sweet equity

Shares issued to management at a low price, giving them a disproportionate share of upside. The "sweetness" comes from the difference between the price paid and the value received if the company performs well. See rollover and sweet equity.

T

TopCo

The top company in the acquisition structure — the entity that directly or indirectly owns the operating business. Typically the vehicle through which equity, prefs and SHLs are issued to investors. See PE fund structures.

TVPI (total value to paid-in)

The sum of DPI and RVPI — the total return to investors including both distributions received and unrealised value. TVPI = DPI + RVPI. See DPI, TVPI and RVPI explained.

V

Vintage year

The year in which a fund makes its first investment (or holds its first close). Used to compare funds of similar age, since PE returns follow a J-curve pattern. See PE fund structures.

W

Waterfall

The sequence in which proceeds are allocated to different stakeholders. Can refer to the equity waterfall (at portfolio company level) or the distribution waterfall (at fund level, governing how returns are split between LPs and GP). See the equity waterfall.