Investment Terms

Glossary of Investment Terms


Annual Return

An annual rate of return is the profit or loss on an investment over a one-year period. There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly.

Asset

Any item of economic value that is owned by an individual or entity.

Asset-Backed Securities

A security whose value and income payments are derived from, and collateralized by, a specified pool of underlying assets, such as loans, leases, credit cards, and royalties.

Asset Classes

Categories of investments that share certain characteristics and exhibit similar patterns of return.

Bear Market

A condition in which securities prices fall and widespread pessimism causes the stock market's downward spiral to be self-sustaining.

Benchmark

The performance objective or standard used to define the return against which another portfolio is to be evaluated.

Bull Market

A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, currencies and commodities.

Capital Gain

An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.

Commodities

Bulk goods and raw materials, such as grains, metals, livestock, oil, cotton, coffee, sugar, and cocoa, that are used to produce consumer products.

Defined-Benefit Plan

A defined-benefit plan is a retirement plan that an employer sponsors, where employee benefits are computed using a formula that considers factors, such as length of employment and salary history. The company administers portfolio management and investment risk for the plan. There are also restrictions on when and by what method an employee can withdraw funds without penalties.

Defined-Contribution Plan

A retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of each of its employees. The defined-contribution plan places restrictions that controls when and how each employee can withdraw these funds without penalties. The State Optional Retirement Program (State ORP) is a defined contribution retirement plan (401-k) PEBA administers as another option instead of the defined contribution plan. The RSIC does not manage the assets of the defined contribution plan.

Derivatives

A security whose price is dependent on, or derived from, one or more underlying assets. The derivative itself is a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes. Most derivatives are characterized by high leverage.

Diversification

A strategy of reducing exposure to risk by combining a wide variety of investments within a portfolio.

Emerging Markets

Investment markets in countries which are not fully developed and where there may be a higher risk of default.

Fixed Income

Securities representing debt obligations and usually having fixed interest payments and maturities. Different types of fixed income securities include government and corporate bonds, mortgage-backed securities, asset-backed securities, and may also include money market instruments.

General Partner

The managing partner in a limited partnership. The general partner manages the operations of the limited partnership based on terms included in the partnership agreement. The general partner has unlimited liability for the debts and obligations of the limited partnership and receives a management fee and a percentage of the profits.

Illiquid

An asset that cannot be easily converted into cash such as real estate, thinly traded securities, and any investments that require a long time to mature (such as private equity investments).

Initial Public Offering (IPO)

The first sale of stock by a private company to the public.

Investment Risk

The degree of uncertainty and/or the amount of possible loss on an investment.

Leveraged Buyout (LBO)

The purchase of a controlling interest in a corporation in order to take over assets and/or operations.

Limited Partner

An investor in a limited partnership that generally has limited liability and is not involved in the day-to-day operations. Limited partners receive income and capital gains.

Limited Partnership

A legal structure used by most venture and private equity funds that usually consists of a general partner and limited partners.

Liquidity

A measure of the ease and relative time in which assets can be turned into cash without an impact on the price.

Management Fee

A management fee is charged by an investment manager for managing an investment fund. This is the manager’s compensation for their expertise selecting investment products and managing the portfolio.

Mezzanine Financing

A hybrid of debt and equity financing that is often used to finance the expansion of existing companies. Mezzanine financing is debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders.

Other Fees

Other fees represent investment related expenses such as the administrative costs of a fund.

Performance Fee / Carried Interest

A performance fee, or carried interest, is a share of the profits generated by the investment manager as a result of a successful investment strategy. This fee may be realized or unrealized. A realized performance fee is a fee that has been paid to the investment manager. An unrealized performance fee is a fee that is owed to the investment manager but has not yet been paid.

Portfolio

A grouping of financial assets.

Private Equity

Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an initial public offering (IPO) or sale to a public company.

Public Equity

Shares that trade on public exchanges or “over-the-counter.”

Retirement System

The five state defined benefit plans are collectively referred to as the “Retirement System” or “Systems”.

Secondary Funds

Private equity partnerships set up to acquire limited partner interests in private equity or venture capital funds, or in direct investments in companies.

South Carolina Retirement System

The South Carolina Retirement System (SCRS) is a defined benefit retirement plan PEBA administers for employees of state agencies, public and charter school districts, public higher education institutions and other local subdivisions of government that participate in SCRS.

Special Situations

As related to private equity, special situations are distressed credit opportunities, mezzanine capital, credit opportunities, and secondary funds.

Stock

Ownership of a corporation represented by shares that are claims against the corporation’s net earnings and assets.

Ticker

Each publicly traded common stock in the U.S. receives a short abbreviation that identifies it, known as its stock symbol or stock ticker symbol. Some stocks have single-letter ticker symbols while.

Trustee

An individual who holds or manages assets for the benefit of another.

Venture Capital

Equity financing of early, expansion, and later-stage emerging small businesses. Venture capital companies grow from start-up to medium-size businesses and are then either sold to the public through an IPO or are sold to a strategic or financial buyer.

Volatility

Volatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.

Yield

The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.