Private Equity & Private Markets Glossary

Private Equity is an asset class that consists of making equity investments in unlisted companies in order to support their growth, transformation or transfer of ownership. Made over a long-term horizon, generally 8 to 12 years for a fund, these investments combine the provision of capital with strategic support for management teams. Private Equity covers several strategies depending on the maturity of the target companies: venture capital, growth capital, buyout and turnaround.

Private markets, or unlisted assets, cover all investments made outside public financial markets. This category notably includes Private Equity, private debt, infrastructure and unlisted real estate. These assets are characterised by a long investment horizon, limited liquidity and periodic rather than daily valuation. They are increasingly included in wealth allocations as a source of diversification and partial decorrelation from listed markets. To go further, read our guide to investing in private markets.

The illiquidity premium refers to the additional return expected by an investor in exchange for committing capital over a long period, with no possibility of a quick sale. It is one of the structural arguments for private markets. This premium is never guaranteed, however: it depends on manager selection, the vintage and market conditions, and the dispersion of performance between funds is significant.

The core-satellite approach is a portfolio construction method that combines a core made up of diversified, resilient strategies offering good visibility (for example a fund of funds or a mid-market buyout strategy) with satellites invested in more targeted strategies designed to enhance return potential (venture capital, sector themes, secondaries). This approach aims to balance stability, diversification and long-term value creation within a private markets allocation.

Private debt consists of financing unlisted companies through debt instruments provided directly by funds rather than by banks or bond markets. It is frequently used by mid-sized companies seeking alternatives to traditional financing, particularly in leveraged buyouts.

Loans generally come with security and covenants negotiated at origination, and creditors are repaid before shareholders in the event of liquidation. The risk profile of private debt is therefore generally lower than that of equity strategies, with more moderate expected returns that come mainly from coupons, often at floating rates.

Infrastructure investment consists of allocating capital to physical assets and essential services: energy networks, transport, telecommunications, renewable energy, water and waste treatment. These are long-term investments, often characterised by stable and predictable cash flows, frequently backed by long-term contracts or regulated tariffs, and protected by significant barriers to entry. Depending on the level of risk, strategies are classified as Core, Core Plus, Value Add and Private Equity Infrastructure.

Venture capital is a Private Equity strategy that invests in young, innovative companies (start-ups) with strong growth potential but a high level of risk. These companies, often not yet profitable, have limited access to bank financing. A distinction is generally made between seed, early stage and late stage. The performance of a venture capital portfolio often relies on a small number of major successes, which implies a wide dispersion of outcomes.

Growth capital, or growth equity, is a Private Equity strategy targeting fast-growing companies with a proven business model, whether or not they are already profitable. These companies seek financing to support a new phase of development: commercial or international expansion, increased capacity or acquisitions. The investor generally takes a minority stake, together with governance rights.

Buyout is a Private Equity strategy that consists of acquiring established companies, most often as a majority shareholder, in the context of a change of ownership: the founder stepping down, a disposal by a group or an exit by another fund. These transactions are generally structured as leveraged buyouts. It is the largest Private Equity strategy by volume, segmented by company size (small cap, mid-market and large cap).

A leveraged buyout (LBO) is an acquisition technique based on financial leverage. A holding company, owned by the fund and often by the management team, takes on debt to finance part of the acquisition, then repays it using the cash flows generated by the acquired company. The financing generally combines equity and several tranches of debt (senior, unitranche, mezzanine). This technique mainly applies to mature companies with stable and predictable revenues.

Turnaround capital is a Private Equity strategy that consists of investing in companies facing operational or financial difficulties. Investors provide capital and close operational support to restructure the company, restore its profitability and support its recovery. This strategy carries a high level of risk and requires specific restructuring expertise.

GP Stakes investing consists of taking minority stakes in the capital of alternative asset management firms (private equity, private debt, infrastructure). The investor receives a share of the management firm's revenues, including recurring management fees, carried interest and income from its balance sheet, without being involved in managing the funds. This strategy offers diversified exposure to several managers and vintages, with distributions that may come earlier than in a traditional private equity fund.

Buy-and-build is a value creation strategy that consists of acquiring a first company, known as the platform, then carrying out complementary acquisitions (add-ons or build-ups) to form a larger group. Value can be created through external growth, commercial and operational synergies and, in some cases, a re-rating effect: a larger group may command a higher valuation multiple than the companies acquired separately.

Co-investment consists of an investor investing directly in a company alongside a Private Equity fund, in a transaction selected by the GP. It makes it possible to increase exposure to a specific deal, generally with a potentially lighter fee structure than that of a traditional fund. In return, co-investment concentrates more risk on the selected companies and requires the ability to analyse and decide quickly.

The EBITDA multiple is one of the main valuation multiples used in Private Equity. It expresses enterprise value as a ratio of the EBITDA generated by the company. Example: a company generating €10m of EBITDA and valued at 10 times that figure has an enterprise value of €100m. Value creation may notably come from EBITDA growth, deleveraging and, in some cases, a change in the valuation multiple between entry and exit.

An exit is the sale of a holding by a fund, the stage at which value creation materialises and distributions to investors become possible. The main exit routes are a sale to a strategic buyer, a sale to another fund (secondary buyout), an initial public offering (IPO) and GP-led transactions on the secondary market.

Direct lending is a private debt strategy in which funds lend directly to companies, without traditional bank intermediation. These loans, often senior and at floating rates, may notably finance leveraged buyouts sponsored by Private Equity funds. Performance comes mainly from the interest paid by borrowers.

Senior debt is the financing tranche that ranks first for repayment ahead of other creditors in the event of the borrower's insolvency or liquidation. It is generally secured by collateral over the company's assets or shares. In return for this level of protection, it offers the lowest return in the capital structure.

Junior debt, or subordinated debt, ranks second: it is only repaid after senior debt. It may take the form of mezzanine financing, second lien debt or a high-yield bond. This less favourable repayment ranking is compensated by a higher interest rate.

Mezzanine debt is a hybrid form of subordinated debt that combines features of debt and equity. It sits in the capital structure between senior debt and equity. Its remuneration generally combines a cash coupon, capitalised interest (PIK) and sometimes a share in capital gains through warrants (equity kicker).

It offers a higher return than senior debt in exchange for greater risk, while still being repaid before shareholders.

Unitranche debt is a form of financing that combines the features of senior and junior debt within a single credit facility. Generally provided by private debt funds, it simplifies the financing structure through a single set of documentation, a single counterparty and a blended interest rate. It is frequently used in leveraged buyouts, refinancings and acquisitions.

PIK debt is a form of subordinated financing whose interest is not paid regularly in cash, but capitalised and added to the principal, which is repaid at maturity. Generally used in leveraged buyouts, it allows the borrower to preserve cash during the life of the financing. In return for higher risk, notably due to the absence of interim cash flows, it offers a higher return than traditional debt.

A CLO is a vehicle that holds a diversified portfolio of leveraged loans made to companies, generally consisting mainly of floating-rate senior loans, and that finances itself by issuing several tranches of debt as well as an equity tranche. Cash flows generated by the portfolio are distributed through a waterfall: the most senior tranches are paid first, while the equity tranche receives the residual cash flows and bears a higher level of risk. CLOs belong to structured credit and allow investors to gain exposure to different levels of risk and return depending on the tranche.

Greenfield projects are investments in infrastructure under development or construction, such as solar farms, fibre-optic networks or data centres. These assets generally do not generate revenue before they become operational and carry construction, timing and cost-overrun risks, which are rewarded by a higher return potential.

Brownfield projects are investments in infrastructure that is already built and in operation, such as motorways, airports or wind farms. These assets generate revenue from the time of investment and may require modernisation, expansion or optimisation work. Their risk profile is generally lower than that of greenfield projects.

Core Infrastructure covers the most mature and least risky infrastructure assets, meeting essential needs: energy networks, public-private partnership (PPP) infrastructure, renewable energy farms with long-term contracts. They generate stable and predictable revenues, often regulated or contracted, supporting regular distributions. This long-term strategy (10 to 25 years) generally targets a return of around 7 to 8% per year.*

Core Plus covers infrastructure assets with a higher level of risk than Core, such as airports, telecom towers or data centres. Revenues are less regulated and more exposed to volumes and market conditions, while remaining relatively predictable. This strategy combines regular distributions with value creation on exit, with a target return generally between 8 and 10% per year.*

Value Add consists of investing in infrastructure assets with value creation potential through development, acquisitions (buy-and-build) or operational improvement strategies. Distributions are generally more limited, as value creation comes mainly from the exit. Riskier than Core and Core Plus, it targets a return of around 10 to 15% per year.*

Private Equity Infrastructure applies Private Equity methods to the infrastructure sector, investing mainly in companies in the sector (services, development platforms, operators) rather than in individual assets. This strategy aims to create value through growth, acquisitions and operational improvements, in exchange for a higher level of risk and a target return generally above 15% per year.*

The General Partner is the manager of a private markets fund. It is responsible for raising capital from investors, then for sourcing, executing, monitoring and exiting investments. Its role is to create value and generate the best possible performance for the fund's investors. Its remuneration is based on management fees and carried interest, which aligns its interests with those of investors.

The Limited Partner is the investor who contributes capital to a private markets fund without taking part in investment decisions. LPs may be institutions (pension funds, insurers, foundations, sovereign wealth funds), family offices or private investors, either directly or through dedicated vehicles. Their liability is limited to the amount of their commitment.

A portfolio management company is an entity authorised, in France by the Autorité des marchés financiers (AMF), to manage one or more investment funds. On behalf of investors, it handles the entire process: sourcing opportunities, due diligence, investment decisions, monitoring holdings and selling assets. In return, it receives fees, notably a management fee.

Management fees remunerate the management company for the day-to-day management of the fund. They are generally calculated as a percentage of commitments during the investment period, then on the basis of capital actually invested or net assets, according to the terms set out by the fund. Other fees may be added: set-up costs, transaction fees or distribution fees. They are detailed in the fund documentation and must be taken into account when analysing net performance.

Carried interest (or "carry") is the share of a fund's capital gains allocated to the management team according to the terms set out in the fund documentation. It is frequently around 20% and may notably apply once a preferred return, or hurdle rate, has been reached, where such a mechanism is provided for. This incentive scheme aims to align the interests of the management team with those of investors.

The hurdle rate, or preferred return, is, where provided for in the fund documentation, the level of return investors must receive before the management team can benefit from carried interest, according to the agreed terms. In Private Equity, it is frequently set at around 8% per year, although its level and mechanics vary from fund to fund.

The waterfall is the order in which a fund's cash flows are allocated between investors and the management team, according to the terms set out in the fund documentation: return of capital, payment of any hurdle rate, a catch-up mechanism, then sharing of capital gains through carried interest. A distinction is notably made between waterfalls calculated at the level of the whole fund and those calculated deal by deal.

The FPCI (Fonds Professionnel de Capital Investissement) is a French alternative investment fund dedicated to private markets, reserved for professional investors and certain categories of qualified investors, generally with a minimum subscription of €100,000. As it is simply declared to the AMF, it benefits from more flexible investment rules than funds open to the general public. It is managed by an AMF-authorised management company. Some FPCIs are also available as unit-linked investments within life insurance or retirement savings (PER) contracts.

The Société de Libre Partenariat is a form of French limited partnership (société en commandite simple) specifically adapted to professional investment funds. Inspired by the Anglo-Saxon limited partnership, it offers great flexibility in organising the relationship between investors and the management team. It is notably used to structure institutional Private Equity funds in France.

The FCPR (Fonds Commun de Placement à Risque) is an AMF-approved fund open to the general public that must invest at least 50% of its assets in unlisted securities, in France or abroad. It is one of the main vehicles giving private individuals access to Private Equity, either directly or through unit-linked contracts, and may entitle investors to tax benefits subject to minimum holding periods.

The FCPI (Fonds Commun de Placement dans l'Innovation) is a category of FCPR that must invest at least 70% of its assets in innovative European SMEs, either unlisted or listed on small-cap markets. In return for a lock-up period, generally of 5 to 10 years, the subscription may entitle investors to an income tax reduction, under the conditions and limits set by the finance law in force.

The FIP (Fonds d'Investissement de Proximité) is a category of investment fund that must comply with investment quotas in SMEs meeting geographical and eligibility criteria defined by regulations. It must notably invest at least 70% of its assets in eligible companies. Under certain conditions, the subscription may entitle investors to tax benefits provided for by the legislation in force, notably for certain FIPs invested in Corsica or the French overseas territories. In this respect it is similar to the FCPI, which focuses on innovative SMEs.

The ELTIF is a European regulatory framework for long-term investment funds, created in 2015 and substantially reformed by the so-called "ELTIF 2.0" regulation, applicable since January 2024. It allows investment notably in Private Equity, private debt and infrastructure, and benefits from a marketing passport across the European Union, including to non-professional investors subject to the applicable regulatory conditions. The ELTIF 2.0 reform relaxed investment rules and the conditions of access to these vehicles.

An evergreen fund is a private markets investment vehicle with no predetermined lifespan. It allows partial subscriptions and redemptions at regular intervals, subject to conditions and limits set out in its documentation (redemption caps, notice periods, possible suspension mechanisms). Unlike a closed-end fund, the investor is immediately exposed to an existing portfolio, without successive capital calls. The fund keeps a liquidity buffer and reinvests exit proceeds to maintain its exposure to private assets.

A feeder fund is a fund that invests at least 85% of its assets in a single fund, known as the master fund. This mechanism allows investors to access institutional funds whose minimum ticket or legal structure would not be directly accessible to them, while management remains centralised at master fund level.

A fund of funds is a vehicle that invests in a selection of underlying funds. In a single commitment, it offers diversification by manager, strategy, geography and vintage, as well as administrative simplicity. In return, this structure involves two layers of fees: those of the fund of funds and those of the underlying funds.

The commitment is the total amount an investor undertakes to invest in a closed-end fund when subscribing. This amount is generally not paid immediately: it is called progressively by the management company through capital calls, often over several years. The investor must therefore keep the cash needed to meet these calls.

The closing is the stage at which investors formally confirm their financial commitment to a fund. Fundraising often involves several successive closings during the subscription period: a first closing, which allows the fund to start investing, then interim closings until the final closing, which definitively ends the fundraising.

The investment period is the phase during which a fund mainly makes its new investments. It frequently lasts between four and five years from the first closing, according to the terms set out in the fund documentation. It is generally followed by a period of managing and exiting holdings. The total life of a closed-end Private Equity fund is often around ten years, with possible extensions.

A capital call is the request sent by the management company to investors to pay part of their commitment, in order to finance an investment or cover the fund's expenses. Calls take place progressively, mainly during the investment period, which explains why a fund is never fully invested at the time of subscription.

Dry powder refers to capital committed by investors to funds but not yet invested. At market level, its amount is notably an indicator of the investment capacity available to funds and can help assess competitive pressure on investment opportunities.

Due diligence is an in-depth analysis carried out before an investment. It aims to assess the financial, legal, tax, operational, commercial or ESG aspects of a company, an asset or a fund. On the investor side, fund due diligence focuses notably on the team, the track record, the strategy, the financial terms and governance.

The equalisation premium is a mechanism applied in certain private equity funds to ensure fair treatment between investors entering at different dates. Late subscribers pay a premium that offsets the advantage they gain by accessing investments already made, and value potentially created since the first closing. It is generally calculated on amounts already called, at a rate defined in the fund documentation, often close to the hurdle rate, and prorated according to the time elapsed. In multi-layer structures (feeder funds, funds of funds), its consistency with that of the underlying fund is a key point of analysis.

Distributions are the amounts paid back to a fund's investors, mainly following the sale of holdings, but also in the form of dividends or interest. They correspond to the repayment of invested capital plus, where applicable, realised capital gains, and are allocated according to the fund's waterfall. They reflect realised performance, measured by DPI.

A re-up is when an investor subscribes to the next fund of a management company in which it has already invested. The re-up rate among existing investors is a closely watched indicator of the confidence placed in a manager, often based on the quality of its past management.

Secondary funds buy existing positions in private funds or portfolios, originally subscribed on the primary market. They thereby bring liquidity to a universe that is illiquid by nature. Acquisitions are often made at a discount to net asset value, which varies with market conditions. Secondary funds generally have a shorter investment duration, earlier distributions and a flatter J-curve, with in return performance multiples that are often more moderate than those of primary funds.

An LP-led transaction is a secondary transaction initiated by one or more investors (LPs) who sell their interests in a fund before its maturity, most often to a secondary fund. It allows them to rebalance a portfolio or obtain liquidity, without changing the structure or management of the fund.

A GP-led transaction is a secondary transaction initiated by the management company (GP), which consists of transferring one or more assets still in the portfolio to a new vehicle, most often a continuation fund. Existing investors can choose to sell their interest or remain invested, while the GP extends its ownership of assets whose value creation potential it considers not yet exhausted.

A continuation fund is a vehicle created to extend the holding period of one or more assets from a fund reaching the end of its life. It allows value creation to continue beyond the originally planned term, while giving existing investors the choice between liquidity and reinvestment. New investors, often secondary funds, finance the purchase of the positions sold.

The discount is the difference between the net asset value of a position and the price at which it is acquired on the secondary market, when that price is lower than this value. Example: a position with a net asset value of 100 acquired for 90 shows a 10% discount. Its level varies notably with the quality and maturity of the assets, the strategy concerned and market conditions.

The J-curve illustrates the change in a private equity fund's cumulative performance over its life cycle. In the first years, performance is generally negative: fees are charged while recently acquired holdings have not yet been revalued. As value creation materialises and exits take place, the curve rises. The letter "J" symbolises this trajectory, first downward then upward.

Net Asset Value corresponds to the value of a fund's assets less its liabilities, generally expressed per unit. In private markets, it is established periodically (quarterly or half-yearly) based on valuations of holdings carried out using recognised methods, such as the IPEV guidelines. It therefore reflects an estimated value rather than a market price.

DPI measures a fund's realised performance: it divides the total distributions paid to investors by the capital called. Example: an investor who has paid in 100 and received 150 in distributions has a DPI of 1.5x. Based solely on cash received, it is net of fees and does not depend on any estimate. A DPI above 1x means the investor has recovered more than the amount invested.

RVPI divides the net residual value of the portfolio still held by the capital called. It thus measures the share of the fund's value that remains unrealised. As assets are sold and proceeds are distributed to investors, RVPI generally decreases. Added to DPI, it gives TVPI.

TVPI measures the total value created by a fund. It divides the sum of distributions already paid and the residual value of the portfolio by the capital called. It is equal to the sum of DPI and RVPI: a fund with a DPI of 0.8x and an RVPI of 0.9x has a TVPI of 1.7x.

MOIC measures how many times the invested capital has been multiplied. It divides the total value (realised and unrealised) of an investment by the amount invested. It is most often used at the level of a holding or a portfolio, and expressed gross, i.e. before fees and carried interest. Unlike IRR, it does not take the duration of the investment into account.

The net multiple measures a fund's performance from the investor's point of view, after deducting all fees and carried interest. It is calculated in the same way as TVPI and is the preferred metric for comparing funds, as the gap between gross and net multiples can be significant.

IRR is the annualised rate of return of an investment, calculated taking into account the amount and date of each cash flow: capital calls, distributions and residual value. Technically, it is the discount rate at which the net present value of these cash flows equals zero. It rewards the speed at which capital is returned: for the same multiple, a fund that distributes earlier shows a higher IRR. It should therefore be read alongside multiples (TVPI, DPI).

Quartile ranking positions a fund's performance against that of a group of comparable funds, generally by strategy and vintage. A "top quartile" fund is among the 25% best-performing funds in the peer group considered. This ranking therefore depends on the database, the methodology and the comparison universe used, which makes it a metric to handle with care in manager selection.

The track record is the performance history of a management team across its previous funds and investments. It makes it possible to assess the consistency of results, the ability to create value through different cycles and the persistence of performance. It is one of the key criteria in fund due diligence, without being an indicator of future performance.

The vintage is a fund's reference year, generally that of its first closing or first investment. As market conditions at the time of investment strongly influence performance, funds are compared with those of the same vintage. Spreading commitments across several vintages helps smooth this risk over time.

DPI measures realised performance: it divides the distributions actually paid by the capital called. TVPI measures the total value created: it adds the residual value of the portfolio still held to the distributions. TVPI is equal to the sum of DPI and RVPI. Early in a fund's life, DPI is low and most of the TVPI is unrealised; at the end of its life, the two metrics converge.

Carried interest is the share of a fund's capital gains, frequently around 20%, allocated to the management team once investors have recovered their capital and received a minimum return known as the hurdle rate. This mechanism aligns the interests of managers with those of investors.

The FPCI is a French fund reserved for professional investors and certain qualified investors, generally with a minimum ticket of EUR 100,000. The FCPR is approved by the AMF and open to the general public, with at least 50% of its assets in unlisted securities. The ELTIF is a European framework, reformed in 2024, that can be marketed across the European Union, including to non-professional investors.

This is the J-curve effect: in the first years, fees are charged while recently acquired holdings have not yet been revalued or sold. Performance turns positive as value creation materialises and exits take place. Secondary funds and evergreen funds can help mitigate this effect.

Private markets investments carry a risk of capital loss, a liquidity risk linked to the lock-up period of the sums invested, and a wide dispersion of performance between funds. Valuations are estimated periodically rather than derived from a market price. Past performance is not a reliable indicator of future performance. These investments should form part of a diversified allocation suited to the investor's horizon and profile.