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Glossary

Glossary

Explore the world of alternative investments confidently with our expert-curated online glossary for all your financial terminology needs.

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721 Exchange

Allows investors to exchange an interest in an investment property (held in a Delaware Statutory Trust, or DST) for an interest in the operating partnership of a Real Estate Investment Trust (REIT) owning numerous properties without recognizing a taxable gain, so long as certain conditions are met...

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1031 Exchange

A method for deferring taxes on the sale of a real estate investment property by directly re-investing sale proceeds in a “like-kind” real estate investment. It is named after section 1031 of the U.S. Internal Revenue Code.

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A

Accredited Investor – U.S.

The U.S. Securities and Exchange Commission (SEC) defines an accredited investor as a type of investor that meets certain requirements:

Financial criteria

  • Net worth >$1 million, excluding primary residence (individual or with spouse/partner).
  • Annual income of $200,000 (individual) or $300...
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Allowed Rate of Return

The agreed upon amount a utility is able to earn on its rate base/regulated asset base, determined by a rate case and approval by the utility’s regulatory body. Allowed rate of return is a key driver in how a utility makes money. The allowed rate of return can either be based on the amount of equity...

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Availability-Based Infrastructure

A guarantee (typically from a government entity or agency) giving an asset owner exclusivity to operate an asset where, so long as the infrastructure is available to use, the owner will receive payment regardless of whether the asset is used. Availability-based infrastructure agreements provide...

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B

Brownfield Investments

Projects that require enhancements to infrastructure assets that are already operational and generating revenues but require significant upgrades to improve profitability.

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Business Development Companies (BDCs)

A type of closed-end investment company that is regulated by the Securities and Exchange Commission under the Investment Company Act of 1940 and primarily invests in small and mid-sized companies (often privately held or founder-owned). 

BDCs were initiated by US Congress in 1980 (Small Business...

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C

Call Protection

A contractual assurance that a lender will earn an agreed-upon yield on a loan for a certain period after closing. Sometimes called a repayment fee, call protection ensures a borrower cannot prepay a loan without paying a fee before the call protection expires.  

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Capital Calls

Issued by General Partners to collect funds from investors (also known as Limited Partners or LPs). When investing in closed-end private equity, venture capital, and certain real estate and infrastructure funds, the LPs commit to investing a predetermined amount of capital at the onset of the fund...

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Capital Expenditures (CapEx)

The funding required to acquire, upgrade and maintain properties. CapEx is often used to undertake physical improvements.

For tax purposes, CapEx cannot be deducted in the year in which it is paid or incurred and must be capitalized. Generally, if the property's useful life is longer than the...

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Capital Improvements

A physical upgrade to a property, such as a renovation or the addition of amenities, that adds to the value or useful life of the investment or adapts it to new uses. Capital improvements are funded through capital expenditures, which increase the cost basis of an asset. Capital improvements differ...

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Capital Stack

Represents all the capital invested in a company. The capital stack provides a comprehensive view of the company’s financial structure and sets out the order of priority for claims on its cash flows, which is vital for assessing risk and potential returns.

Common equity is considered the top...

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Capitalization Rate (Cap Rate)

A return metric used to estimate a property’s value based on its income potential. It is calculated by dividing the property’s net operating income by the present-day value of the property as indicated by prevailing market rates.

The cap rate is an important metric for real estate investors...

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Carbon Capture and Storage (CCS) and Carbon Capture, Utilization and Storage (CCUS)

A developing technology that captures carbon dioxide (CO2) emissions produced by the burning of fossil fuels for power generation or other industrial processes. In CCS, CO2 is separated from other gases, then compressed and transported to an underground storage site. CCUS goes a step further than...

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Carried Interest

The percentage of a private fund’s investment profits that a General Partner (GP) receives as compensation. Also known as incentive fees or performance fees. Typically, a fund needs to, or must meet a specific return (also known as a hurdle rate) before the manager earns carried interest (or “carry”...

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Cash-on-Cash Return

The cash return on investment compared to the amount of cash invested. Cash-on-cash return is the ratio of annual pre-tax cash flow to the total amount of invested cash, or equity. 

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Catch-up

Payments to a General Partner (GP) that go into effect after an investor’s returns reach the defined hurdle rate. During the catch-up period, a GP may receive an agreed percentage of profits until the profit split determined by the carried interest agreement is reached.

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Class A Real Estate

High quality, newer properties located in desirable markets with little or no deferred maintenance issues. Generally, Class A buildings are professionally managed and have luxury amenities, stable tenants and very high occupancy. These desirable factors allow owners to command a premium to market...

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Class B Real Estate

Properties that are older than their Class A counterparts and tend to generate average market rent. Class B properties may or may not be professionally managed. Class B buildings may have deferred maintenance issues. Value-add investors often view these properties as investment opportunities because...

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Class C Real Estate

Properties that are at least 20 years old and situated in less desirable locations. Class C properties typically need renovation and have deferred maintenance issues, such as updating the building infrastructure to bring it up to date. As a result, Class C buildings have the lowest rental rates in a...

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Clawback

A contractual provision to allow Limited Partners (LPs) to reclaim money or assets that were previously paid, typically in cases of overpayment. A clawback may be triggered to rectify a clerical error or an error that resulted in collecting too much carried interest. A carried interest clawback may...

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Closing Costs

Fees paid upon completion of a real estate transaction. Closing costs typically include inspections, appraisal fees, title searches, title insurance, title transfer, surveys, taxes, deed recording fees and loan origination fees. The seller typically pays closing costs. 

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Co-investment

When a Limited Partner (LP) invests alongside a General Partner (GP) to purchase a portfolio company. The LP benefits from a lower fee in exchange for providing the GP with additional capital to manage diversification risk and/or take on larger deals.  

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Collateral

An asset or property that may serve as security for a loan. If a borrower fails to repay a loan according to the agreed terms, the lender may have the right to seize collateral to recover the outstanding debt. Collateral provides a form of assurance for the lender that often reduces the risk...

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Colocation

When multiple mobile network operators (MNOs) hang their equipment on one cell phone tower. Tower companies typically own cell tower structures and lease space to MNOs under long-term contracts. Colocation is becoming increasingly important for supporting the growth in data and the need for more...

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Committed Capital

The amount of capital investors pledge to a private fund. Committed capital is subsequently requested or “called” from investors to fund the General Partner’s purchase of a portfolio company (in the case of private equity) or shares of an existing private fund (in the case of secondaries). 

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Concession

A guarantee from a government entity or agency giving an asset owner exclusivity to operate an asset. With concessions, revenues are based on usage, which introduces less long-term visibility.

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Contracted Revenues

An agreement between an asset owner and counterparties that specifies usage and price. Many contracted revenue agreements have Consumer Price Index-based price adjustments.

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Core Infrastructure

Strategies that generally target mature, lower-risk, operational assets. Core infrastructure assets tend to be in developed markets, have stable capital structures, and have predominately contracted or regulated revenues with minimal exposure to any shifts in volumes across the system. 

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Core Real Estate

Properties that carry relatively low risk where current income reflects the bulk of the return. A core property requires very little asset management, is not burdened by extensive deferred maintenance requirements and is typically occupied with credit tenants on long-term leases. These properties...

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Core-Plus and Value-Add Infrastructure

Strategies that generally invest in assets requiring some enhancements, seeking to provide investors with more appreciation potential. While many core-plus and value-add infrastructure assets have contracted or regulated revenues, there may be room to improve upon contracts with better terms or...

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Core-Plus Real Estate

Properties that tend to provide growth potential and income. Core-plus property owners typically have the ability to increase cash flows through light property improvements, management efficiencies or by increasing the quality of tenants. These properties may be in good (rather than great) locations...

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Covenant-Lite

Used to describe leveraged financings where there are fewer obligations on the borrower than in a traditional loan arrangement (e.g., the borrower may be able to take on additional debt). In covenant-lite (also called “cov-lite”) agreements, there are fewer protections for the lender.

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Covenants

Legally binding stipulations or requirements that the borrower must meet to remain in good standing on a loan or bond. A covenant breach may put the borrower in default.

Maintenance (or affirmative) covenants are specific things the borrower must do (e.g., maintain a certain interest coverage...

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D

Data Center Fit-Out

Making the inside of an already-constructed data center suitable for housing necessary equipment such as computer servers, network connections and more.

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Data Infrastructure

Assets that make it possible to store, transmit and process ever-growing amounts of data. A newer part of the infrastructure universe, data infrastructure is the backbone of the digital economy and includes data centers, fiber networks, cell towers and distributed antenna systems.

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Debt Service Coverage Ratio (DSCR)

A financial metric comparing a borrower’s annual total debt obligations to its net operating income. Lenders use DSCR when a borrower applies for a loan (or to refinance an existing loan) to gauge a borrower’s financial health and to determine the maximum loan amount.

For example, in real estate...

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Debt-to-Equity Ratio (D/E)

Used to evaluate the amount of financial leverage in an investment, calculated by dividing the debt of an asset or a company by its total equity. 

In real estate, D/E is used as a measure of ownership and is calculated by dividing the mortgage balance by the property’s equity. 

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Decarbonization

The global goal of reaching net-zero emissions by 2050. Infrastructure investment will be crucial for achievement. Opportunities are wide-ranging, including: the buildout of renewable power generation, enhancing electrical infrastructure, repurposing existing infrastructure assets and investing in...

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Deglobalization

The buildout of infrastructure to help onshore production of critical goods, enhance the resiliency of global supply chains and support the development of more localized energy sources.

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Digitalization

The buildout of data infrastructure to support ever-expanding data usage. Opportunities include replacing the existing copper network with fiber optic cable for faster speeds, adding infrastructure to support 5G and new wireless solutions, and building data centers to support migration to the cloud.

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Direct Investment

When a General Partner purchases an equity stake of a portfolio company.

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Direct Lending

Origination of a bilateral loan where non-bank creditors extend loans to businesses without using an intermediary, such as an investment bank. Direct lending, a subset of private credit, most commonly refers to first-lien loans made to middle-market companies (i.e., typically those with annual...

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Discount Rate

A rate of return used to discount future cash flows back to their present value. Discount rate is calculated to account for the time value of money and as an indicator of the risk within an investment. It can act as a hurdle rate for investment decisions and make different types of investments...

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Distressed Debt

The debt obligations of a business facing financial distress, default or bankruptcy. The business may sell its debt to investors at a discount to raise the capital required to remain solvent or make improvements to restore financial viability such as restructuring its debts. Distressed debt...

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Distribution

The final stage of delivering electricity to consumers. Distribution lines and networks transfer electricity from local distribution points, such as substations, to homes, businesses and other consumers.

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Distribution to Paid-in (DPI)

A measure of return after fees, calculated as the ratio between total capital returned to the investor as distributions (realized portfolio company exits after accounting for management fees) and total capital invested. 

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Down Round

Fundraising that prices a portfolio company at a lower valuation. 

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E

Earn Out

A mechanism to resolve pricing disagreements between buyer and seller. Earn outs can be structured in two ways:

  • The buyer can offer a lower price in return for additional compensation to the seller if the portfolio company hits performance milestones. 
  • The buyer can purchase the portfolio...
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Earnings Before Interest and Taxes (EBIT)

A measure of a company’s core profitability. EBIT takes net income and adds back interest and taxes. 

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

A measure of a company’s core profitability. EBITDA takes net income and adds back interest, taxes, depreciation and amortization. It is helpful for comparing companies with differing levels of capital assets and related amortization/depreciation expenses. 

Electrical Grid

The network that facilitates the generation, transmission and distribution of electricity. An electrical grid consists of power plants, transmission and distribution lines, substations and other components.

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Energy Storage

Assets that can store energy for later use. Energy storage development is vital for the advancement of renewable power, given its intermittent nature (e.g., solar power can only be generated during the daytime).

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Enterprise Value (EV)

The total value of a company or an indicator of how much it would cost to purchase the company, calculated as the total value of a company’s equity and debt minus cash.

Entry Cap Rate

The capitalization rate (cap rate) for a real estate asset at the time of purchase. Also known as the going-in cap rate, the entry cap rate is calculated based on the property’s purchase price and Year One net operating income.

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Escrow

Funds in a financial transaction held by an impartial third party until certain conditions are fulfilled. In real estate, escrow funds are held until all conditions of a sale agreement are met by both buyer and seller. Typically, these funds are considered a down payment on a real estate purchase...

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Exit Cap Rate

An estimation of a property’s future net operating income divided by its expected selling price at the time of sale. Also known as the terminal cap rate.

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Exits

The partial or full sale of a portfolio company by a private equity fund. Exits can take many forms, ranging from initial public offerings (IPOs) to private sales to a strategic or financial buyer.

F

Fee Rebates to Limited Partners

When General Partners (GP) provide their portfolio companies with advisory and management services for a fee, which is then used to offset a GP’s management fee on a fund.

Fiber Optic Cable

A type of cable used across telecommunications and computer networks that can transmit large amounts of data over long distances at high speeds. As data usage rapidly grows, there is a movement to upgrade traditional copper cables to fiber optic cables given the greater speed and bandwidth...

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Financial Buyers/Sponsors

Entities (often private equity funds) that look to acquire a company to generate value and exit the company at a profit.

First Lien

The first debt to be paid when a borrower defaults and the property or asset was used as collateral for the loan. Considered senior secured debt.

Fixed-Rate Debt

A bond or loan with an interest rate that remains constant or fixed.

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Floating-Rate Debt

A bond or loan with an interest rate that “floats” to reflect changes in borrowing rates. Floating rates are typically priced as a combination of a reference rate, such as the Secured Overnight Financing Rate (SOFR), and an added premium (or spread) that reflects perceived risk. For example, a loan...

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Follow-on Investment

When a private equity fund makes additional equity investments into a portfolio company in exchange for more equity. Follow-on investments are common for early-stage companies that require multiple rounds of fundraising to support rapid growth. Funding can be used to hire additional staff, scale...

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Fund-of-Funds (FoF)

A fund investment strategy that invests into other funds via primary or secondary transactions. An FoF approach allows for diversification across strategies, geographies and/or vintages at the cost of potentially higher fees (e.g., the FoF fee and fees of the underlying funds). 

Fundraising Round

A specific stage in a company’s financial journey where it seeks external investment to fuel its growth. These rounds allow the company to raise capital from outside investors, typically in exchange for equity or partial ownership of the business. The valuation of a business is often determined by...

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G

General Partner (GP)

Responsible for managing a limited partnership. A limited partnership provides access to investments, typically through funds, that are not available on public markets. In addition to raising funds and administering daily fund operations, the GP is responsible for deciding when to make investments...

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Generation

The production of electricity. Generation is the first step in delivering electricity to consumers and can be derived from a variety of sources such as renewables (wind, solar, hydro, etc.), fossil fuels (gas, coal, etc.) or nuclear. 

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Greenfield Investments

Properties that generally require development and construction. The work required comes with construction and development risk, a longer investment horizon and potential operational complexity.

Grid Modernization

Upgrading an electrical grid to make it more adaptable, resilient and able to meet growing electricity demands (particularly from renewable energy). Grid modernization makes it easier to deliver power to consumers in a more reliable and efficient manner. It includes updating transmission and...

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Gross Return

The return on an investment before expenses and fees. 

H

High Barriers to Entry

Physical infrastructure assets are often expensive to build and must be situated in specific locations, making the underlying businesses difficult to replicate. This greatly reduces competition risk, and as a result many assets have dominant market positions. For example, no would-be competitor...

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Hurdle Rate/Preferred Return

A return level or benchmark that fund managers must exceed before they can receive performance fees or carried interest compensation.

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I

Illiquidity Premium

The additional return investors expect as compensation for the cost and inconvenience of investing into assets that are not readily tradeable. The illiquidity premium is calculated by measuring the excess return of a less tradeable investment vs. a comparable tradeable investment.

Liquidity...

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Inflation-linkage

A feature of infrastructure contracts and regulatory frameworks where pricing is explicitly linked to inflation. When there is an inflation-linkage agreement, the price charged automatically increases and allows revenues to grow alongside inflation. Or, given high barriers to entry, asset owners may...

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Infrastructure

Assets that provide the essential services that underpin the global economy by moving people, goods, commodities and data. The infrastructure asset class spans five sectors – transport, renewable power, utilities, midstream and data – and the opportunity set continues to grow. Within these sectors...

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Infrastructure Debt

Strategies where lenders provide money to infrastructure asset owners for a variety of purposes including financing capital expenditures, refinancing existing debt, or providing acquisition financing. Infrastructure debt managers can target different parts of the capital structure with varying risk...

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Initial Public Offering (IPO)

A common portfolio company exit that involves listing and selling company shares to the public on a stock exchange. An IPO exit may result in higher valuations than other exit paths and provide greater visibility among investors. 

Interest Rate Floor

Sets a minimum level for the interest rate on a loan or investment, thereby protecting the lender against a decrease in interest rates below a specified level, typically the benchmark rate (i.e., the Secured Overnight Financing Rate). This can help lenders manage interest rate risk and ensure a...

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Internal Rate of Return (IRR)

A calculation used to estimate the future value of an investment as if it were valued at the present. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. Fundamentally, IRR and discount rate are similar, but IRR solves for...

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Interval Funds

A type of closed-end fund, not listed on an exchange, which gives investors access to investments with less liquidity than open-end funds. 

Interval funds can sell shares continuously based on their NAV. They must offer to repurchase 5-25% of NAV at defined intervals. Shareholder distributions...

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Invested Capital

The after-fees amount of investor capital that has been used to purchase portfolio companies.

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J

J-curve

A trendline of returns reflecting an initial loss followed by sharp upward gain (forming a shape like a capital J) to above the original investment. The J-curve reflects the typical investor's experience in a private market fund, where it can often take several years for an investor to recoup their...

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K

Key Performance Indicator (KPI)

A metric used to evaluate performance of a business in the real estate industry. KPIs can be used to examine different business segments in the real estate market, including investment property potential.

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Key-Man Provision

A common clause within a fund’s governing document to protect investors from adverse changes in investment management. Key-man provisions identify investment personnel who must be sufficiently involved with the fund’s investment management. If the provision is breached due to insufficient...

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L

Lease-Up

The period for a rental property (e.g., an apartment building) between completion of construction or renovation of a property and stabilization. The end of lease-up period is typically when the building reaches approximately 90% occupancy. 

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Leveraged Buyout (LBO)

An acquisition of a portfolio company utilizing high levels of debt. Leverage levels can be as high as 90%, with the remainder funded by equity. In an LBO, assets of the portfolio company are often used as debt collateral to support the acquisition.

Limited Partner (LP)

Institutions or high-net-worth individual investors that contribute capital to a business venture. In a limited partnership, LPs do not make business decisions—the partnership is guided by the General Partner.

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Limited Partner (LP) Advisory Committee

A committee composed of LPs that provides oversight and conflict of interest resolutions to General Partners on behalf of all LPs within a fund. 

Limited Partnership (LP)

An investment vehicle that gathers funding from investors which is used by a fund manager or General Partner to acquire portfolio companies on behalf of the LP.

Loan-to-Value Ratio (LTV)

A measurement of lending risk that is calculated by dividing the borrowed amount by the value of the underlying asset. Loans with high LTVs have less asset collateral and higher risk as borrowers are less likely to fully repay the loan in the event of a default.

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M

Management Fees

Payment due to a General Partner (GP) in exchange for the management of a fund. Management fees for closed-end funds typically have two phases:

  • Investment Period: Management fees are charged on committed capital while the GP raises funds and finds portfolio companies to invest in. This is often...
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Mezzanine Debt

A source of funding that uses preferred equity, convertible bonds or subordinated debt. Mezzanine debt ranks higher than common equity and below senior debt in the repayment priority.

Mezzanine debt is a hybrid of debt and equity where repayment priority is lower than senior debt but positioned...

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Middle Market

Companies with revenues generally ranging from $50 million to $1 billion.

Midstream Infrastructure

Assets that facilitate the transportation, storage and processing of crude oil, natural gas and natural gas liquids. Assets include gathering and processing systems, pipelines, storage and export facilities.

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Multiple on Invested Capital (MOIC)

An after-fees measure of investment return, MOIC represents the ratio between the value of investments (realized and unrealized) and investor capital.

Mutual Funds

Publicly traded vehicles that pool individual investors’ money together into one professionally managed portfolio of stocks, bonds, and/or other securities. Mutual funds allocate underlying investments according to a stated strategy or actively seek to outperform either the broader market or a...

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N

Net Operating Income (NOI)

A metric that determines the profitability of a property, NOI is calculated as total revenue minus operating costs. It does not account for capital expenses, depreciation, or amortization. 

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Net Return

The return a Limited Partner receives on an investment after fees and expenses.  

Non-Sponsored Financing

Transactions where lenders work directly with borrowers, without a bank, intermediary or sponsor. Non-sponsored financing lenders are responsible for all aspects of due diligence and underwriting, which can take longer than sponsored financing (which often comes with a diligence package prepared by...

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Non-traded Real Estate Investment Trusts (NTRs)

Semi-private real estate investment vehicles that are not listed or traded on a public exchange and are typically priced monthly. NTRs provide access to private real estate—warehouses, apartments, retail, etc.—that generate income through rent.

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O

Occupancy Rate

The ratio of space rented out or used to the total amount of available space. 

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Onshoring

The relocation of a business process to inside a country rather than utilizing goods and services from other countries.

Operating Expense (OpEx)

Ongoing costs associated with operating and maintaining a property. OpEx are made up of three main components:

  • Property taxes: taxes charged to the property owner by governing bodies
  • Insurance: cost to insure the building, which is typically required by the lender financing the property
  • Commo...
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Opportunistic Financing

A wide range of lending transactions that require specialized knowledge or involve more complexities than traditional direct lending. Examples of opportunistic financing include rescue financing and exit financing (providing capital that companies need to exit bankruptcy).

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Opportunistic Infrastructure

Strategies that generally invest in assets with significant development or restructuring needs. Opportunistic infrastructure generally has revenues that are very sensitive to shifts in demand, as they may be dependent on volume or price, or located in an emerging market.

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Opportunistic Real Estate

The riskiest of all real estate strategies with the most complexity relative to other real estate properties, opportunistic real estate typically requires extensive work and property management experience in order to realize a worthwhile profit. 

Investments may include the significant...

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Opportunity Zone

An area within an economically distressed U.S. community where new private investments may be eligible for preferential tax treatment, designated by the U.S. Internal Revenue Service. They were created by the 2017 Tax Cuts and Jobs Act to encourage private investment aimed at creating economic and...

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Original Issue Discount (OID)

Issued to a bond or loan when the amount loaned or financed is less than face value. The OID amount that goes to the lender equals the difference between the original face value amount and the discounted price paid.

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P

Paid-in Capital

The cumulative total of a Limited Partner’s committed capital that has been called and transferred into a fund.  

Payment-in-Kind (PIK)

Occurs when a borrower pays interest “in-kind,” deferring and adding interest payments to the outstanding balance of a loan in lieu of cash payment. Sometimes called toggle notes or toggle loans, PIK allows borrowers to switch between paying interest in cash or in-kind. PIK often commands a higher...

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Portfolio Company

A company owned by a private equity fund. 

Power Plant

A facility that generates electricity by converting various forms of energy into electricity. 

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Power Purchase Agreement (PPA)

A long-term power supply agreement between two parties, usually a power producer and a utility or large company. The PPA states how much power will be supplied at a negotiated price, providing power producers high visibility into their revenues. Some PPAs are linked to inflation via Consumer Price...

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Private Credit

Loans provided by a non-bank lender directly to a borrower. Private debt is often issued to companies with little to no access to traditional sources of financing such as banks or the public markets. This type of loan is also known as a direct lending transaction.

Private debt is not publicly...

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Private Equity

Funds that take full or partial ownership in companies with the goal of improving the business, increasing its value and then exiting at a profit via an initial public offering or sale to a strategic buyer or financial sponsor. 

Private equity strategies can be categorized depending on where they...

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Public-Private Partnership

An agreement between a government/municipal entity and a private company to help finance, construct, and operate an infrastructure asset. Public-private partnerships are primarily used for infrastructure projects. Notable recent examples of public-private partnerships include the renovation and...

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Q

Qualified Purchaser – U.S.

A classification of U.S. investor type that meets specific standards set by the U.S. Securities & Exchange Commission to invest in certain alternative investments. A qualified purchaser is:

  • A person/family company/trust with an investment portfolio valued at a minimum of $5 million.
  • A company...
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R

Rate Base/Regulated Asset Base

Used to describe the value of a utility’s asset base upon which the utility can earn a return on its investment. This can include the value of water, gas and electricity transmission and distribution lines, certain generation assets, gas mains, water treatment facilities and meters, as well as other...

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Rate Case

The process through which a utility company seeks approval from a regulatory body for the rate it charges customers. The rate case ensures prices are reasonable for consumers while allowing utilities to earn an adequate return on investment (the allowed rate of return). The rate case process...

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Real Estate

Land and any permanent structures or natural resources attached to it. There are many different types of real estate assets, from apartments and homes to offices, farms, data centers and warehouses. Investing in real estate includes purchasing a home, rental property or land. Indirect investment in...

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Real Estate Debt

Money borrowed to finance the purchase, development, or improvement of real estate properties. Real estate debt is commonly used by individuals, businesses and investors to acquire or enhance real estate assets. The debt instrument is secured by a specified real estate property as collateral. 

Re...

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Real Estate Development Risk

Factors that can impact the time taken to complete a ground-up development that requires significant construction. Development risks include physical and market conditions which can lead to higher input and financing costs, construction delays, contractor disputes and permitting issues, or...

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Real Estate Investment Trust (REIT)

A company that owns or finances real estate and real estate-related assets. A REIT does not pay federal income tax on net taxable income distributed as deductible dividends to shareholders. To qualify as a REIT, companies must meet a number of requirements, including paying 90% of taxable income to...

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Real Estate Secondaries

Transactions for buying interests in established property portfolios and/or single assets from existing investors, rather than making initial originations. By buying in at a later stage through real estate secondaries, investors assume less duration risk compared to investing in a blind pool at...

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Real Estate Stabilization

The following the construction/renovation of a property when residents are being sought, marking the end of lease-up. Once stabilization is achieved—generally when a property, such as an apartment building, reaches approximately 90% occupancy—the property should produce steady, stable rental income.

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Recapitalization

Changing the capital structure of an investment, including the debt and equity mix, to optimize financing. This often involves exchanging one form of financing for another.

In private equity, a company can perform a recapitalization by increasing or decreasing debt in exchange for equity or...

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Refinancing

The process of replacing an existing loan or debt obligation with a new loan under different terms. When an individual or entity refinances a loan, they typically pay off the existing debt with the proceeds from the new loan. The new loan may have a lower interest rate, extend the repayment period...

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Regulated Investment Company (RIC)

An investment vehicle that is qualified to pass through income to individual investors with the purpose of avoiding double taxation.

Regulated Revenues

A company’s regulated revenue profile is typically set by a government/municipal entity and reflects the size of its asset base, its cost of capital, as well as expenses. It will also include an allowance for depreciation of the assets. Given steady demand for the services provided and the pre...

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Renewable Power

Infrastructure assets that generate energy from natural, replenishable sources, such as wind and solar farms, hydro dams, residential solar, and storage, such as large-scale batteries.

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Restructuring

Process used to avoid the risk of defaulting on existing debt, such as by negotiating lower interest rates. Restructuring is applicable across investment types. For example, restructuring can be used for companies in financial trouble, or for distressed real estate debt. 

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Return of Capital (ROC)

A distribution that an investor receives from a portion of their original investment and is not considered income or capital gains from the investment. Although ROC distributions are typically not taxable, it is important to note that such distributions reduce the adjusted cost basis of the...

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Risk-Free Rate

The return required or interest paid on a theoretical risk-free asset (an asset with zero loss potential). While all real-world assets have the potential for loss, an example of a risk-free asset proxy includes U.S. government treasuries, given their low perceived risk or loss potential.

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S

Sale-Leaseback

Arrangements that allow companies to free up capital, often by selling mission-critical properties and renting them back under a net lease contract from the new owner.

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Second Lien

Borrowing that occurs after a first lien loan is already in place, with property or assets used as collateral for the debt. Second lien refers to the ranking of the debt in the event of bankruptcy and liquidation. Repayment begins only after first lien debt is fully repaid. Considered senior secured...

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Secondaries

Transactions for buying interests in later-stage investments from private equity funds, established real estate property portfolios, and/or single assets from existing investors rather than making initial originations.

In private equity, this type of investing spans across the complete company...

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Secured Debt

A secured loan or bond backed by collateral that can be seized in the event of default. If a default occurs, a lender has a better chance to recover its investment using the pledged capital.

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Secured Overnight Financing Rate (SOFR)

A proxy for the risk-free rate and the benchmark used for dollar-denominated loans and derivatives. SOFR represents the annualized interest rate for borrowing collateralized U.S. government treasuries overnight.

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Senior Debt

A borrowing company’s highest repayment priority. If the company goes bankrupt, senior debt is paid first in order of priority. Senior secured debt is backed by specific assets or a claim on the company, and so it is considered less risky. The higher the repayment priority, the lower the expected...

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Side Letters

Separately negotiated terms that supersede a fund’s governing documents. Side letters are often used to tailor a fund’s terms to investors’ specific needs or to provide incentives to anchor/seed investors. 

Smart Meter

A device that measures and records electricity, water or gas consumption in real time for the utility company. Smart meters allow utilities to remotely manage services, respond more quickly to outages and provide consumers with energy consumption data and improved billing accuracy.

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Société d'Investissement à Capital Variable (SICAV)

An open-ended, publicly traded vehicle that pools individual investors’ money into one professionally managed portfolio of stocks, bonds and/or other securities. SICAVs are governed by European Commission regulations.

Sponsor

Entities that provide support during transactions within the financial services industry. Sponsors can invest in private companies, raise funds, underwrite mutual funds or exchange-traded funds, and may also guide companies through initial public offerings (IPO). A sponsor is usually considered the...

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Sponsored Financing

A loan in which a non-bank lender provides money to a business that is either wholly- or majority-owned by a private equity sponsor firm, also referred to as sponsor-backed lending. The private equity sponsor uses its network and experience to identify the appropriate lender, help shepherd the...

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Strategic Buyers/Sponsors

Entities, often companies, that acquire portfolio companies to complement or grow their business. 

Subordinated Debt

Also known as junior debt, subordinated debt is lower than senior debt in terms of repayment priority.

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Substation

Points on the electrical grid where electricity is readied for long-distance transmission as well as distribution to consumers. Substations also monitor and manage the flow of electricity along the electrical grid.

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Syndicated or Leveraged Loans

The origination of a loan or bond offered through one or multiple banks. Because it is syndicated, investors typically participate via public sale.

T

Take-or-Pay Contract

An agreement between the contracting parties that the infrastructure asset user will either “take” the services or goods provided or “pay,” even if they are not utilized. A take-or-pay contract provides high visibility into revenues, as the asset operator knows how much of a service or good will be...

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Tariff

The fee charged by an asset owner for the use of their infrastructure asset. 

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Tender Offer Funds

A type of closed-end fund not listed on an exchange that gives investors access to less liquid investments than open-end funds. Tender Offer funds can sell shares continuously based on their net asset value. Tender offer fund shares can be repurchased at the discretion of the fund’s board...

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Total Value to Paid In (TVPI)

A before-fees measure of return on an investment. TVPI represents the ratio between the value of investments (realized and unrealized) and the investor’s paid-in capital.

Transmission

The movement of electricity to local distribution points such as substations via transmission lines and networks. Transmission is the second step in delivering electricity to consumers.

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Transportation Infrastructure

Assets related to the movement of people and goods, including rail and mass transit, ports, containers, toll roads, bridges, tunnels and airports.

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Turnover

The comparison of the number of tenants who stay at a rental property as compared to those who vacated the property. It is calculated by dividing the number of vacancies by the number of available units.

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U

Undertakings for Collective Investment in Transferable Securities (UCITS)

An investment vehicle that pools individual investors’ money into one professionally managed portfolio of stocks, bonds and/or other securities, including long/short funds and funds that are highly leveraged. UCITS are governed by European Commission regulations and investors must hold an EU...

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Unitranche

A hybrid loan structure that combines senior debt and subordinated debt into one loan. The borrower of unitranche debt or financing typically pays an interest rate that falls between the rates that the senior and subordinated debt would command individually. 

Unsecured Debt

A loan or bond that is not backed by the assets or other collateral of the borrower. With unsecured debt, a lender may not be able to recover their investment in full or in part in the event of default since the borrower does not pledge specific assets as collateral for the debt.

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Utilities

Infrastructure assets that provide water, gas and electricity. Utilities own and operate power plants, electricity transmission and distribution lines, gas and water transmission lines, as well as water treatment facilities and distribution networks (including pipes, pumps and storage facilities)...

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Utility-Scale Wind and Solar Farms

Large-scale facilities that generate extensive amounts of renewable power (wind and solar) to supply to the electrical grid. They are typically owned and operated by utility companies, independent power producers, or other large energy enterprises.

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V

Valuation Multiple

A commonly used valuation method based on the principle that similar assets should sell for similar prices. A company’s valuation multiple is compared against peers or recent sales of peers to assess reasonability of valuation. Two common ways to determine valuation multiple are:

  • Enterprise value...
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Value-Add Real Estate

Properties that tend to provide growth potential and are associated with moderate to high risk. Value-add buildings often have occupancy issues, management problems, deferred maintenance or a combination of these. Value-add properties may be acquired with up to 80% leverage at purchase. Value-add...

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Venture Capital

Investment vehicles that target early-stage companies that show promising potential in hopes of achieving multiples on the initial investment. Typical venture capital vehicles invest in companies that, more often than not, exhibit the following characteristics: they have high revenue growth rates...

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Vintage

A method to categorize private equity funds. A fund’s vintage year refers to the year a private equity fund makes its first investment. Grouping private equity funds by yearly vintages can help improve comparison between funds by removing or standardizing the effect of a particular year’s...

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W

Waterfall

The methodology by which revenues and profits are split between fund investors and the General Partner. The waterfall describes how much of the fund distributions each party receives, the priorities between them and how those priorities change as breakpoints or hurdle rates are achieved.

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Workout

An agreement between a company in default and its creditors to renegotiate the terms of its debt. Workouts are often negotiated outside of bankruptcy proceedings, offering the potential for faster resolution, lower expenses and targeted loan negotiations with major creditors.

Write-Off

Recognizing a loss on asset by reducing its value to zero.