Glossary of Investment Terms
Explore key financial terms and concepts across investment sectors to enhance your understanding of the industry.
General Investment Terms
Accredited Investor
An individual or entity that meets specific financial criteria, enabling them to invest in private equity and other unregistered securities.
Alpha
The amount of return expected from an investment from its inherent value.
Annualized
A procedure where figures covering a period of less than one year are extended to cover a 12-month period.
Annualized rate of return
The average annual return over a period of years, taking into account the effect of compounding. Also called compound growth rate.
Appreciation
The increase in value of a financial asset.
Asset Management
The process of managing investments on behalf of clients, typically involving institutional and private investors.
Asset allocation
The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.
Asset class
Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents.
Alternative Investments
Non-traditional investment types, including private equity, hedge funds, real estate, and venture capital.
Arbitrage
A strategy of exploiting price discrepancies between markets or financial instruments to make a profit.
Asset Allocation
The distribution of investments across different asset classes (equities, bonds, real estate, etc.) to balance risk and reward.
Benchmark
A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.
Blue chip
A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period.
Buyout
The acquisition of a company, often with the use of borrowed funds, by a private equity firm.
Capital Commitment
The amount of money an investor agrees to invest in a fund over a specified period.
Capital loss
The amount by which the proceeds from a sale of a security are less than its purchase price.
Capital Structure
The mix of a company's debt and equity financing used to fund its operations and growth.
Capitalization
The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.
Common stock
Securities that represent ownership in a corporation; must be issued by a corporation.
Convertible Debt
Debt that can be converted into equity under specific conditions, often used in venture capital and private equity deals.
Crowdfunding
Raising capital from a large number of investors, typically through online platforms.
Cut-off time
The time of day when a transaction can no longer be accepted for that trading day.
Dollar cost averaging
Investing the same amount of money at regular intervals over an extended period of time, regardless of the share price.
EPS
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.
Equities
Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages.
Growth stock
Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue, and usually pays little or no dividend.
Letter of intent
A document stating serious intent to carry out certain business activities, often used in mutual fund investing to qualify for reduced sales charges.
Liquidity
The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value on any business day.
Long-term investment strategy
A strategy that looks past the day-to-day fluctuations of the stock and bond markets and responds to fundamental changes in the financial markets or the economy.
Market risk
The possibility that an investment will not achieve its target.
Mid-cap
The market capitalization of the stocks of companies with market values between $3 to $10 billion.
Net Asset Value per share (NAV)
The current dollar value of a single mutual fund share; also known as share price.
Price-to-book
The price per share of a stock divided by its book value (net worth) per share.
Price-to-earnings (P/E) Ratio
A stock's price divided by its earnings per share, which indicates how much investors are paying for a company's earning power.
Risk tolerance
The degree to which you can tolerate volatility in your investment values.
Securities
Another name for investments such as stocks or bonds.
Short-term investment
Asset purchased with an investment life of less than a year.
Valuation
An estimate of the value or worth of a company; the price investors assign to an individual stock.
Value investing
A strategy whereby investors purchase equity securities that they believe are selling below estimated true value.
ESG & Impact Investing
Environmental, social and governance (ESG) integration
The systematic inclusion of financially material ESG factors in investment analysis and investment decisions, with the goal of enhancing long-term, risk adjusted financial returns.
Environmental (ESG)
Factors that relate to the quality and functioning of the natural environment, and natural systems, e.g., carbon emissions, environmental regulations, water stress and waste.
Social (ESG)
Factors that relate to the rights, well-being, and interests of people and communities, e.g., labor management, health & safety.
Governance (ESG)
Factors that relate to the management and oversight of companies and investee entities, e.g., board structure, pay.
Impact investing
A sustainable investment style that seeks to generate measurable positive social or environmental impact alongside financial return.
Investment stewardship
Engaging with companies and voting proxies to ensure our clients' interests are represented and protected and the company is focused on responsible allocation of capital and long-term value creation.
Private Equity and Venture Capital
Private Equity (PE)
Investment in private companies or buyouts of public companies, typically aimed at long-term capital growth.
Venture Capital (VC)
A form of financing provided to early-stage, high-potential growth companies in exchange for equity.
Seed Funding
The initial capital used to start a business, usually provided by angel investors or early-stage venture capitalists.
Series A/B/C Funding
Successive rounds of funding for a company as it grows, each round bringing in more significant investments.
Leveraged Buyout (LBO)
A method of acquiring a company using a significant amount of borrowed money.
Exit Strategy
The method through which a private equity or venture capital firm plans to sell its investment and realize a return.
Due Diligence
A comprehensive investigation or audit of a potential investment, including financial, legal, and operational aspects.
Deal Flow
The rate at which investment opportunities are presented to a firm.
Term Sheet
A non-binding agreement that outlines the basic terms and conditions of an investment or transaction.
Growth Equity
Investment in a company to help it scale, typically in a more mature stage than early-stage VC funding.
Arbitrage & Trading Terms
Market Arbitrage
Exploiting price differences for the same asset in different markets.
Statistical Arbitrage
A strategy that uses quantitative analysis and models to identify price inefficiencies in financial markets.
Merger Arbitrage
A strategy that involves buying and selling stocks of companies involved in a merger or acquisition.
Risk Arbitrage
A form of merger arbitrage that specifically focuses on the risks involved in the completion of a merger or acquisition.
Block Trade
A large trade, typically executed outside of the public market to avoid moving the price of an asset.
Cross-Border Arbitrage
Arbitrage opportunities that exist between different countries' financial markets due to differences in pricing or regulation.
OTC (Over-The-Counter)
A decentralized market where financial instruments, like stocks and derivatives, are traded directly between two parties.
Liquidity Arbitrage
Profiting from discrepancies in liquidity levels across different markets or instruments.
Hedge
A strategy to reduce risk in investments by taking offsetting positions in related assets.
Short Selling
Selling an asset that is borrowed, with the intention of buying it back at a lower price to profit from the decline.
Special Situations
Special Situations
Investment opportunities arising from unique, non-recurring events, such as mergers, restructurings, or bankruptcies.
Distressed Assets
Securities or assets of a company in financial trouble, often acquired at a discounted price.
Debt Restructuring
A process where a company renegotiates its debt obligations to improve its financial stability.
Spin-Off
When a company creates a new independent company by distributing shares to its existing shareholders.
Turnaround Strategy
A business strategy aimed at reversing the decline of a struggling company.
Bankruptcy Buyouts
Acquiring a distressed company in bankruptcy proceedings, often at a significant discount.
Toxic Debt
Debt that is likely to become uncollectible or is seen as a liability to the company's financial health.
Takeover Target
A company that is a potential candidate for acquisition.
Asset Disposal
The sale of a company's assets to raise capital or simplify operations.
Corporate Restructuring
A reorganization of a company's structure or operations, often to reduce costs or improve performance.
Business Funding & Financing
Private Placement
The sale of securities to a small group of investors, often without going through a public offering.
Angel Investor
An individual who provides capital to early-stage businesses in exchange for equity or debt.
Venture Debt
A form of debt financing that is often used by startups, typically secured by venture capital funding.
Bridge Loan
A short-term loan used to bridge the gap between a company's immediate financial needs and long-term financing.
Convertible Note
A form of short-term debt that converts into equity, usually in a future financing round.
Equity Financing
Raising capital by selling ownership stakes in the company, usually in the form of stocks.
Debt Financing
Raising capital through borrowing, which must be repaid with interest.
Crowdfunding
A way to raise capital from a large number of small investors, often via online platforms.
IPO (Initial Public Offering)
The process of offering shares of a private company to the public for the first time.
Syndicated Loan
A loan provided by a group of lenders, often used for large-scale financing projects.
Financial Metrics & Performance
EBITDA
Earnings before interest, taxes, depreciation, and amortization, a measure of a company's operational performance.
IRR (Internal Rate of Return)
The discount rate that makes the net present value of cash flows from an investment equal to zero.
NPV (Net Present Value)
The difference between the present value of cash inflows and outflows over a period of time.
CAGR (Compound Annual Growth Rate)
The rate of return that would be required for an investment to grow from its beginning balance to its ending balance.
P/E Ratio (Price-to-Earnings)
A ratio used to value a company, calculated by dividing the market price per share by the earnings per share.
ROE (Return on Equity)
A measure of a company's profitability relative to shareholders' equity.
Debt-to-Equity Ratio
A financial ratio that compares a company's total debt to its shareholders' equity.
Operating Margin
A ratio that measures the profitability of a company's core business operations.
Free Cash Flow
The cash that a company generates after accounting for capital expenditures, often used for reinvestment or debt repayment.
Exit Multiple
A financial ratio used to determine the value of a company at the time of its exit or sale.
Market Dynamics
Market Sentiment
The overall attitude of investors towards a particular market or asset, often driving trends.
Volatility
The extent to which the price of an asset fluctuates over time, indicating the level of risk.
Bear Market
A market characterized by falling prices and pessimism.
Bull Market
A market characterized by rising prices and optimism.
Market Liquidity
The ability to buy or sell an asset without significantly impacting its price.
Bid-Ask Spread
The difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.
Overbought Market
A market condition where prices have risen too quickly, often indicating a potential price correction.
Oversold Market
A market condition where prices have dropped too quickly, often indicating a potential rebound.
Hedge Fund
An investment fund that employs a wide range of strategies to generate returns, often including arbitrage and special situations.
Market Capitalization (Market Cap)
The total market value of a company's outstanding shares of stock.
Index
An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category.
Large-cap
The market capitalization of the stocks of companies with market values greater than $10 billion.
Legal and Regulatory Terms
Compliance
Adherence to laws, regulations, and policies that govern investment activities.
KYC (Know Your Customer)
The process of verifying the identity of clients to prevent fraud and money laundering.
AML (Anti-Money Laundering)
Legal measures to prevent the use of financial systems for illegal activities, such as money laundering.
Lock-Up Period
A period following an IPO during which major shareholders are restricted from selling their shares.
Qualified Institutional Buyer (QIB)
A financial institution that is eligible to buy securities that are exempt from certain SEC regulations.
Private Offering
An offering of securities that is not made to the public but is instead offered to a limited group of investors.
Material Adverse Change (MAC)
A clause in contracts that allows parties to terminate the agreement if there is a significant negative change in a company's financial condition.
Reg D
A regulation under the U.S. Securities Act that provides exemptions for private placements.
Shareholder Rights Agreement
A legal agreement that outlines the rights and obligations of a company's shareholders.
MiFID II (Markets in Financial Instruments Directive II)
A European Union regulation that improves the functioning of financial markets by increasing transparency, protecting investors, and promoting market efficiency.
FATCA (Foreign Account Tax Compliance Act)
A U.S. tax law designed to prevent tax evasion by U.S. citizens and residents holding assets in foreign financial institutions.
Operational Terms
Operational Efficiency
The ability of a company to deliver its goods or services in the most cost-effective manner while maximizing profit.
Scalability
The capacity of a business to grow and manage increased demand without compromising performance.
Synergy
The concept that the combined value of two businesses will be greater than the sum of their individual values.
Management Buyout (MBO)
A form of acquisition where the management team of a company purchases the business from its owners.
Venture Studio
An organization that builds multiple startups at once by providing resources and support.
Deal Sourcing
The process of identifying potential investment opportunities, often a key component of a private equity firm's operations.
Burn Rate
The rate at which a startup is spending its capital before reaching profitability.
Exit Strategy
The method by which an investor plans to exit an investment, such as through a sale or IPO.
Due Diligence
The investigative process to assess the risks and potential returns of an investment.
Inorganic Growth
Growth achieved through mergers, acquisitions, or partnerships rather than through the company's own operations.
Advanced Financial Concepts
Swap Agreements
Derivative contracts where two parties agree to exchange financial instruments or cash flows.
Structured Finance
Financial products designed to pool assets and create securities that can be sold to investors.
Securitization
The process of transforming illiquid assets into tradable securities.
Credit Default Swap (CDS)
A financial derivative that functions as a form of insurance against the default of a debt instrument.
Collateralized Loan Obligation (CLO)
A structured financial product that pools loans and issues securities backed by the loans.
Mezzanine Financing
A hybrid of debt and equity financing, often used for growth capital in private equity deals.
Convertible Preferred Stock
A class of preferred stock that can be converted into common stock under specific conditions.
Tax-Deferred Investment
Investments where taxes are delayed until the funds are withdrawn or realized.
Hurdle Rate
The minimum rate of return on an investment that a private equity firm must achieve before it can receive its performance fee.
Waterfall Structure
A method of distributing proceeds from an investment, often in private equity, where investors receive their returns in a specific order.