Risk Measurement Guidelines - EVCA

Net asset value (NAV)The NAV of a fund is the amount estimated as beingattributable to the investors in that fund on the basis ofthe fair value of the underlying investee companies andother assets and liabilities.> Net present value (NPV)The NPV of a fund is the discounted current value ofthe expected future cash inflows and outflows, calculatedusing an appropriate cost of capital.> Orderly transactionAn orderly transaction is a transaction that assumesexposure to the market for a period prior to the date ofthe transaction to allow for marketing activities that areusual and customary for transactions involving suchassets or liabilities.> Partnership AgreementThe Partnership Agreement mainly covers terms, fees,structures and other items agreed between the limitedpartners and the general partner. It also determinesthe timing of distributions to the limited partner andhow profits are divided among the limited partnersand general partner.> Private equity*Private equity provides funding in equity form from fundsto acquire a majority or minority stake in portfoliocompanies in different stages of development across awide range of industries. The term is widely used andencompasses venture capital (typically a minority stakeinvested in an early-stage or pre-profitable business),through to enterprise capital (a minority or majority stakeinvested in portfolio companies at critical points of theirdevelopment). When majority stakes are acquiredthrough enterprise capital investments, these arecommonly referred to as “buyout” transactions.> Reporting dateThe date for which the risk measurement is beingprepared. It is the same as the measurement date.> Secondary investments or secondaries*These terms are typically used to refer to the transfer of anLP’s contractual commitment and interest in an existingfund to another LP (“secondary fund investment”).In contrast, the term secondary (direct) sale is used todescribe the sale by a fund of its interests in one or moreportfolio companies to a fund managed by a different GP.> Stale pricingStale pricing is a result of reported net asset valuesof a fund not incorporating all available information.Therefore, stale pricing leads to a time-lag betweenobservable market valuations and valuations in privateequity portfolios.> Undrawn commitmentA significant part of a fund’s commitments will not beneeded immediately but only as investment opportunitiesarise. They remain with the limited partners and arecalled by the general partner over the agreed investmentperiod as and when investment opportunities areidentified. This capital is a fund’s undrawn commitment.> ValidationValidation is the process of determining the degree towhich a model is an accurate representation of the realworld from the perspective of the intended uses of themodel, and whether the logic followed by the modelconforms to economic and mathematical principles.> Venture capital*Funding typically provided in equity form to companiesin early stages of their life cycles, i.e. seed, early-stage,development, or expansion. Historically the term wasused to refer generally to all private equity investments,which is why many private equity associations refer onlyto venture capital in their name.> VerificationVerification refers to the process of determining whetherthe output from the model conforms to actualexperiences in the real world.38 I EVCA Risk Measurement Guidelines 2013