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Vocabulary

The terms are in alphabetical order. See also EVCA-glossary.

Alternative asset class	The alternative asset class includes investments in private equity and hedge funds as well as indirect property investments. Listed shares are not classified within the alternative asset class. Institutional investors typically allocate a certain percentage of their investments to the alternative asset class.
Buy-and-Build	Active, organic growth of portfolio companies through addon acquisitions.
Buyout	A transaction in which a business, business unit or company is acquired from the current shareholders by company management or with an external group. Buyout investments are generally divided into pure buyout investments and growth financing. CapMan Buyout’s activities focus on buyout transactions in the Nordic countries. See Management buyout (MBO).
Capital call	When investors commit themselves to back a private equity fund, all the funding may not be needed at once. Some is used as drawn down later when the General Partner asks for capital from investors in its funds. Usually a fund investor (limited partner) commits to provide a certain amount of capital to a private equity fund, and the General Partner draws down commitments in several stages when the funds makes new investments.
Capital under management	This is the total amount of capital committed in the funds, i.e. the remaining capital available for future investments, the capital already invested (at cost) and not yet divested, and the capital already invested and divested.
Capital weighted average IRR	The average IR weighted by gross fund size, with all funds contributing to the average in proportion to their size.
Carried interest	A bonus entitlement or "performance fee" accruing to an investment fund’s management company. The management company begins to receive carried interest after the investors (limited partners) have regained their investment in addition to a preferred annual return (hurdle rate). Also known as ”carry”.
Commitment	A limited partner’s obligation to provide a certain amount of capital to a private equity fund.
Core	A term that describes the risk/return profile of real estate investment activities. Core properties have a low occupancy rate risk and long-term leases, they are technically modern and their value creation potential is steady. Core properties have a relatively low return and a low risk. Net rental income from core properties is lower than for value added and opportunistic properties.
Deal flow	The number of investment opportunities available to a private equity house. Early stage Seed and start-up stages of a business.
Equity fund	A private equity fund making investments.
EVCA	(European Private Equity and Venture Capital Association) A non-profit trade association of entities acting in the European private equity and venture capital markets. The EVCA represents, promotes and protects the interests of the European private equity industry.
Exit/Realisation	Liquidation of holdings by a private equity fund. Typical exit methods are sale to an industrial buyer, sale to another private equity investor or sale by public offering (including IPO ).
Expansion stage	A fund investment strategy involving financing for the growth and expansion of an existing company.
Fair value	The market value for which an investment could be exchanged in an arm’s length transaction. CapMan values investments to fair value in accordance with the guidelines of EVCA .
Follow-on/Add-on investment	An additional investment in a portfolio company which has already received funding from a private equity investor.
Fund focus	The strategy of specialisation by stage of investment, sector of investment and geographical concentration.
Fund of funds	A fund that makes equity investments in other funds.
Fundraising	The process in which private equity houses themselves raise money to create a private equity fund. These funds are raised from private, corporate or institutional investors, who make commitments to the fund which will be invested by the General Partner.
Fund size	The total amount of capital committed by the limited and general partners of a fund.
FVCA	(Finnish Venture Capital Association) A cooperative association of communities or private individuals acting in the Finnish private equity and venture capital markets.
General Partner	A partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership
Hurdle rate	The annual IRR that private equity fund managers must return to their investors before they can receive carried interest.
Institutional investor	An investor, such as a pension fund, endowment fund, insurance company or bank, which generally has substantial assets and experience in investments and invests capital on behalf of corporations or private individuals.
Internal rate of return (IRR)	In a private equity fund, the net return earned by investors from the fund’s activity from inception to a stated date. The IRR is calculated as an annualised effective compounded rate or return, using monthly cash flows and annual valuations.
Later stage	A fund investment strategy involving financing for the expansion of a mature company. Life science Includes pharmaceuticals, medtech and biotechnology. CapMan Life Science invests primarily in companies that are specialised in medical technology.
Liquidity	The convertibility of a share to cash.
Management buyout (MBO)	A buyout in which the target’s management team acquires an existing product line or business from the vendor with the support of private equity investors.
Management fees	Compensation for the management of a private equity fund’s activities. This annual management charge is equal to a certain percentage of investors’ initial commitments to the fund. CapMan’s management fees are usually 1.5– 2.5% of the fund’s commitments/remaining portfolio for equity funds and 1.25–1.5% for mezzanine funds.
Medical technology/MedTech	A sector of life science that includes product development and distribution, as well as related services, for medical equipment and diagnostic devices.
Mezzanine finance	A financing instrument involving subordinated debt (the level of financing senior to equity and below senior debt).
Mezzanine fund	A fund focusing on mezzanine financing. See mezzanine finance.
Opportunistic	A term that describes the risk/return profile of real estate investment activities. Opportunistic properties have a relatively high risk. They are located in unestablished areas and may require further investments. The purpose of use of opportunistic properties may be specialised, for example warehouses or outlet stores, and they may have a high vacancy rate. Opportunistic properties are associated with development needs or development potential. Net rental income is higher than for core and value added properties.
Portfolio	A group of investee companies or assets.
Portfolio company/ Investee company	The company or entity into which a private equity fund invests directly.
Private equity	General term for private equity and venture capital investment activities, including buyouts as well as investments in technology and life science companies (venture capital investments). In the US, private equity refers mainly to buyout transactions.
Real estate development/ Property development	Active strategies to create value in an individual property or a specific area and its properties.
Real estate investment	Commitment of capital into a real estate asset (or part thereof) with the expectation of near-term increases in cash flow and value. Real estate investments may be held directly or indirectly, for example through shares and managed real estate funds.
Real estate maintenance/management	Activities that aim to preserve the condition, value and features of a property. Real estate management can be subdivided into property management services and facilities maintenance services.
Secondary investment	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.
Seed stage	An investment strategy involving portfolio companies which have not yet fully established commercial operations, and may also involve continued research and product development.
Syndication	A group of private equity investors jointly investing in an investee company.
Technology Track record	CapMan Technology’s investment focus is on rapidly growing technology companies in the Nordic countries. A private equity management house’s experience, history and past performance.
Vacancy rate	One of the most important key figures in real estate investment. The vacancy rate describes the total amount of available space compared to the total inventory of space as a percentage for a specific part of the market. To calculate the vacancy rate, the utilised space (occupancy rate) is subtracted from the total inventory of space.
Value added	A term that describes the risk/return profile of real estate investment activities. Value added properties are located in established office and industrial estates with opportunities to enhance value creation through active leasing and development operations. Value added properties typically have shorter leases than core properties, and they may have vacancy. Net rental income is between that of core and opportunistic properties.
Venture Capital	Venture capital is, strictly speaking, a subset of private equity and refers to equity investments made to fund the launch, early development or expansion of an unquoted, and usually quite young, company. Offsetting the high risk the investor takes is the expectation of higher than average return on the investment. See private equity.