Glossary
Inception
The starting point at which IRR calculations for a fund are calculated; the vintage year or date of first capital drawdown.See IRR, horizon IRR.
Independent director
A member of the board of Directors of a company who is not affiliated with the company in any other capacity.
Independent fund
One in which the main source of fundraising is from third parties.Compare captive fund, semi-captive fund.
Index
A benchmark against which financial or economic performance is measured, (eg S&P 500, FTSE 100).
Information rights
A contractual right to obtain information about a company, including, for example, attending board meetings. Typically granted to venture capitalists investing in privately held companies.
Initial investment
First private equity-backed investment made in an investee company.Compare follow-up investment.
Inside spread, or inside quote
The difference between the highest bid and lowest ask price being quoted by market makers for a security.See mid-market value.
Insider dealing
A range of possible offences centred on the possession of non-public information by a party and the illegal or improper use of that information to deal or encourage others to deal in securities, or to disclose that information to anyone other than in the proper performance of their duties.
Institutional buyout (IBO)
Outside financial investors (eg private equity houses) buy the business from the vendor. The existing management may be involved from the start and purchase a small stake. Alternatively, the investor may install its own management.See buyout.
Institutional investor
An organization such as a bank, investment company, mutual fund, insurance company, pension fund or endowment fund, which professionally invest, substantial assets in international capital markets.
Intellectual property
Patents, copyrights, trademarks, trade secrets and similar rights in ideas, concepts, etc.
Interest cover
One indicator used by banks to calculate debt ceiling. It consists of EBIT divided by net interest expenses. This ratio is a measure of the company’s ability to service its debt.
Interest/earnings stripping
Limitation in interest deductibility for a company, where only part of the interest expenses can be deducted (generally expressed in percentage of EBIT or EBITDA).
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 of return, using monthly cash flows and annual valuations.
International Accounting Standards (IAS)
A series of accounting standards that are to be implemented by businesses by 2005. More information can be obtained from www.iasc.org.uk
Investee company
See portfolio company.
Investment committee
A committee within a private equity/venture capital fund, fund of funds or limited partner that has the final decision on the individual investments made. Members of the committee are either part of the fund or sometimes outside experts.
Investment philosophy
The stated investment approach or focus of a management team.See focus.
Investment Services Directive (ISD)
A Directive produced by the European Commission regarding the provision of investment services within the member states of the European Union. It has been described as the passport to Europe for securities houses. The ISD’s key feature is mutual recognition: a) any firm approved to provide investment services within its home state is mutually recognised by all other member states as being allowed to provide the same services within those other member states; b) any stock market or exchange recognised by its Competent Authorities within one member state is mutually recognised in all other member states as being allowed to offer its services (including the installation of trading system computer terminals) within those other member states. The result of ISD will be a borderless single marketplace for securities covering all member states of the European Union.See Competent Authority, Prospectus Directive.
IPO (Initial Public Offering)
The sale or distribution of a company’s shares to the public for the first time. An IPO of the investee company’s shares is one the ways in which a private equity fund can exit from an investment.See exit.
IRR Internal Rate of Return
The IRR is the interim net return earned by investors (Limited Partners), from the fund from inception to a stated date. The IRR is calculated as an annualised effective compounded rate of return using monthly cash flows to and from investors, together with the Residual Value as a terminal cash flow to investors. The IRR is therefore net, i.e. after deduction of all fees and carried interest. In cases of captive or semi-captive investment vehicles without fees or carried interest, the IRR is adjusted to created a synthetic net return using assumed fees and carried interest.
Irrevocable undertaking
A binding agreement entered into by the shareholders (including directors/shareholders acting as shareholders) of the target company to accept the proposed offer in relation to shares held by them. A "hard" irrevocable undertaking is an unconditional binding agreement to accept the offer in any circumstances and is usually only given by those shareholders who are also part of the participating management team. A soft irrevocable undertaking is a conditional ommitment to accept the offer subject only to a higher offer not being made and is usually given by institutional shareholders. Irrevocable undertakings are sometimes simply referred to as irrevocables.
