Glossary of Investing Terms

 

 

Private equity

Equity securities of companies that are not listed on a public exchange. Transfer of private equity is strictly regulated; therefore, any investor looking to sell his/her stake in a private company has to find a buyer in the absence of a marketplace. Returns on private equity generally occur in three ways: a merger or sale, an initial public offering, or a recapitalization.

 

Private equity is a broad term that commonly refers to any type of equity investment in an asset in which the equity is not freely tradeable on a public stock market. More accurately, private equity refers to the manner in which the funds have been raised, namely on the private markets, as opposed to the public markets. Private equity firms were commonly misknown to invest in assets which were not in the public market. As we now know, larger private equity firms such as KKR, Blackstone, etc. invest in companies listed on public exchanges and take them private. Passive institutional investors may invest in private equity funds, which are in turn used by private equity firms for investment in target companies. Categories of private equity investment include leveraged buyout, venture capital, growth capital, angel investing, mezzanine capital and others. Private equity funds typically control management of the companies in which they invest, and often bring in new management teams that focus on making the company more valuable.

 

Public equity

Equity in a publically traded company. Duh.

 

Venture capital

Funds made available for startup firms and small businesses with exceptionalgrowth potential. Managerial and technical expertise are often also provided. Also called risk capital.

 

Fixed Income

A security that pays a specific interest rate, such as a bond, money market instrument, or preferred stock. What about loans, aren't they fixed income also?

 

Angel investor

An individual who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

 

Mezzanine Debt

Debt that incorporates equity-based options, such as warrants, with a lower-priority debt. Mezzanine debt is actually closer to equity than debt, in that the debt is usually only of importance in the event of bankruptcy. Mezzanine debt is often used to finance acquisitions and buyouts, where it can be used to prioritize new owners ahead of existing owners in the event that a bankruptcy occurs.

 

 

Mezzanine financing

Late-stage venture capital, usually the final round of financing prior to an IPO.

 

Pari pasu

Often seen in venture capital term sheets, indicating that one series of equity will have the same rights and privileges as another series of equity. ('of equal step' in latin)

 

Add on service

The non-monetary services provided by a venture capitalist, such as helping to assemble a management team and helping to prepare the company for an IPO.

 

Environmental Economics

 

a subfield of economics concerned with environmental issues (other usages of the term are not uncommon). It applies the standard methods of neo-classical economics, but attempts to quantify environmental impacts. It sees the environment as a subsidiary to economics.  For example a cost benefit analysis of climate change - using neoclassical methods to quantify environmental impacts.

 

Ecological Economics

Maintains that ecomomics is a subset of the environment. It distinguishes itself from neoclassical economics (NCE) primarily by its assertion that economics is a subfield of ecology, in that ecology deals with the energy and matter transactions of life and the earth, and the human economy is by definition contained within this system. In contrast, NCE has historically assumed implicitly (and, more recently, explicitly) that the environment is a subset of the human economy. See this for more. It's complex and cool.

 

No load fund

A mutual fund which doesn't impose a sales or redemption charge, selling and redeeming its shares at net asset value. 

 

Load fund

A mututal fund which carries a load - A sales charge added to the purchase and/or sale price

 

Annuities

A contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. The holder is taxed only when they start taking distributions or if they withdraw funds from the account. All annuities are tax-deferred, meaning that the earnings from investments in these accounts grow tax-deferred until withdrawal.

 

Closed end fund

A fund with a fixed number of shares outstanding, and one which does not redeem shares the way a typical mutual fund does. Closed-end funds behave more like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange, and they are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). also called closed-end investment company or publicly-traded fund

 

Open End Fund

A fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives.  In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities.

 

ROI

Return on Investment. A measure of a corporation's profitability, equal to a fiscal year's income divided by common stock and preferred stock equity plus long-term debt. ROI measures how effectively the firm uses its capital to generate profit; the higher the ROI, the better.

 

Natural Capitalism

A set of trends and economic reforms to reward energy and material efficiency and remove professional standards and accounting conventions that prevent such efficiencies. It emerged in the 1990s as a coherent theory of how to exploit market systems and mechanisms of neoclassical economics to save energy, discourage waste, mimic ecology (biomimicry), and in general to support the goals of environmentalism by reframing commodity and product relations towards a strictly service economy, thereby extending the services of natural capital.