Financial terms
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Limited partnership
A limited partnership is a business structure that includes a general partner responsible for the day-to-day management and a limited partner who benefits from the partnership’s profits in proportion to their investment. The limited partner is not involved in daily management and is not liable for the partnership’s debts.
Private Equity Fund
A fund that raises capital from institutional investors and high-net-worth individuals with the goal of generating returns on their investments. Unlike other funds traded on the stock exchange, this investment fund is non-tradable. The fund is legally organized as a limited partnership and managed by the general partner, who specializes in the field. The general partner can be an individual or a company. The investors in the fund are called the "limited partners."
Distribution Waterfall
The distribution waterfall is a mechanism through which the capital accumulated by the fund is allocated between the general partner and the limited partners. The American model allows profit distribution to the fund manager starting from the first deal, based on each individual transaction made by the fund.
Multiple
A multiple is essentially a measure of the fund's performance. There are several types of multiples used for calculation. Most commonly, the investment multiple is used by taking the total proceeds received and dividing them by the amount invested. The result provides the investor with a metric of the size of the return relative to the total investment over the life of the fund.
J Curve
During the first years in the funds, known as the "investment years" for new investments, the fund identifies suitable investments, and therefore the cash flow in the initial years is negative. When the investments begin to generate income, the cash flow turns positive.
IRR (Internal Rate of Return)
IRR is the fund’s internal rate of return, calculated based on two components: timing and total cash flow. The internal rate of return serves as a measure of how worthwhile it is to invest in a deal and whether it is efficient, profitable, and secure.
General Partner (GP)
The fund managers will be defined as the "General Partner." The "General Partner" is responsible for all the ongoing obligations of the fund
Limited Partners (LPs)
The limited partners are the investors. Such a partner is usually a "silent partner," who invests the capital but does not participate in the management of the fund.