Firms and Players

Bain Capital: The private-equity firm founded by Mitt Romney. Distinct

from Bain & Co., the consulting firm, where Romney and others at Bain
Capital once worked, and that provided Bain Capital with its start.
Blackstone Group: Founded by Peter G. Peterson and Stephen Schwarzman
in 1985 and headquartered in New York. Stock symbol: BX, on the New York
Stock Exchange.
Carlyle Group: Founded by William Conway, Daniel D’Aniello, and David
Rubenstein in 1987 and headquartered in Washington. Stock symbol: CG on
the Nasdaq.
General partner: Abbreviated as GP, it’s another term for a private-equity
manager. Blackstone, Bain, Carlyle, KKR, and TPG are GPs.
ILPA: The Institutional Limited Partners Association. A group of investors in
private-equity funds who conceived a set of guidelines to encourage more
transparency and lower fees. Usually pronounced as “ILL-puh,” it began as a
supper club in the early 1990s and evolved into an influential trade
association.
KKR: The firm founded by Jerome Kohlberg, Henry Kravis, and George
Roberts in 1976. Headquartered in New York. Trades as KKR on the New
York Stock Exchange.
Limited partner: Abbreviated as LP, these are the pensions, endowments,
and sovereign wealth funds that commit the money that comprises private-
equity funds. Public pensions in California and Washington are examples of
LPs.
9 West: The iconic sloping building on West 57th Street in Manhattan that
houses KKR, among other private-equity firms, and offers sweeping views of
Central Park.
TPG: Created by David Bonderman, James Coulter, and William Price in
1992 and originally called Texas Pacific Group. Headquartered in Fort Worth,
Texas, though most of its senior executives work in San Francisco. Not
publicly traded.
 Industry Terms
AUM: Assets under management. Refers to the value of funds overseen by a
private-equity manager plus the value of the companies it owns through those
funds.
Carried interest: Also known as “carry,” this is the portion of profits a
private-equity manager keeps from a successful investment. Unlike salaries
earned in other professions, carry is taxed at the lower capital gains rate
instead of the tax rate for ordinary income. Some have argued that it should be
treated as ordinary income, which would roughly double the taxes paid on this
income by managers. Managers argue that carry is investment income akin to
the “sweat equity” in an entrepreneurial venture and should be treated like a
profit from selling a public stock or bond. The fight boiled over into a
mainstream issue amid the Occupy Wall Street protests and the 2012
presidential election.
Dividend recap: Short for dividend recapitalization, this involves a payout to
the private-equity manager, usually through additional borrowing against the
company’s assets. Called recapitalization because it’s a way of returning the
manager’s initial capital investment, it’s sparked controversy around how and
when private-equity firms get paid.
Exit: Shorthand for how a private-equity firm gains a profit for itself and its
investors when it sells the company it originally bought. Firms can “exit” their
investment by doing an initial public offering, a sale to another private-equity
firm, or a sale to a corporation.
Financial engineering: A term, usually used derisively, for the practice of
buying a company with lots of debt, doing very little to the company itself,
and selling it quickly for a profit. Private-equity firms increasingly tout their
ability to make changes to the underlying business and its operations to prove
they aren’t simply financial engineers.
Fund: Private-equity firms collect discrete funds to make investments in a
variety of companies. A firm typically manages a number of funds. Carlyle
alone has 89 active funds around the world.
IPO: Initial public offering. A sale of shares of a company to shareholders
who can then buy or sell the stock on an exchange like the New York Stock
Exchange or Nasdaq. Private-equity firms including Blackstone, Apollo, and
Carlyle have pursued IPOs for their own firms, as well as companies they
control.
IRR: Internal rate of return. A common way to measure a fund’s performance,
this takes into account the amount the manager generates as well as the
amount of time the money was invested.
MOIC: Multiple of invested capital. Another performance measure, this
calculates how much actual money was generated during the investment
period. Investors usually use both IRR and MOIC to judge a fund and its
manager’s success.
Portfolio: Such as a stock portfolio; private-equity managers use this term to
describe the slate of companies they own through their funds.
SWF: Sovereign wealth fund. Refers broadly to pools of capital tied to
governments. China, Singapore, and a number of Middle Eastern countries
have funds worth hundreds of billions of dollars. These funds are increasingly
important limited partners in private-equity funds as well as co-investors.
Vintage: Similar to the term for wine, the year a specific private-equity fund
officially started. Since the broader market has an effect on a fund’s
performance, investors often compare funds of the same vintage.