Glossary
J-curve
The curve generated by plotting the returns generated by a private equity fund against time (from inception to termination). The common practice of paying the management fee and start-up costs out of the first drawdowns does not produce an equivalent book value. As a result, a private equity fund will initially show a negative return. When the first realisations are made, the fund returns start to rise quite steeply. After about three to five years the interim IRR will give a reasonable indication of the definitive IRR. This period is generally shorter for buyout funds than for early stage and expansion funds.See hockey stick.
Junk bond
A junk bond is a bond on company debt, which is rated as ‘BB’ or lower, assuming some risk of being repaid by the company. Junk bonds are also known as “High-yield-bonds”. Within the private equity market, junk bonds are related to buyout investments, when bonds of a transactions are rated as ‘BB’ or less.See also High yield bonds
