Private Equity Basics: A Beginner’s Guide for Executives

Stepping into private equity (PE) from the corporate world often feels like entering a new country where everyone speaks in acronyms and shorthand. Recruiters, investors, and portfolio company leaders use terms that may sound familiar yet carry specific meanings in PE. If you don’t speak the language fluently, you risk appearing unprepared - even if you have the right experience.

This post provides a glossary-style overview of the most important PE terms every corporate executive should master.

The Basics: Fund & Deal Terms

• General Partner (GP): The PE firm itself, responsible for raising funds, making investments, and managing portfolio companies.

• Limited Partner (LP): Investors in the fund, often pension funds, endowments, or family offices.

• Dry Powder: Capital committed by LPs but not yet invested. PE firms with large amounts of dry powder are actively looking for deals.

• Capital Call: When the PE firm asks LPs to provide a portion of their committed capital to fund an investment.

Value Creation Language

• EBITDA: Earnings before interest, taxes, depreciation, and amortization. This is the metric most PE firms use to measure operating performance.

• Bolt-On Acquisition: A smaller company acquired by a portfolio company to expand market share or capabilities.

• Operational Levers: Specific areas PE firms look to improve, such as pricing, supply chain efficiency, or digital transformation.

Exit Strategies

• Secondary Buyout: When one PE firm sells a portfolio company to another PE firm.

• Strategic Sale: Selling to a larger company in the same industry.

• IPO: Taking the company public, though less common today than other exits.

• Continuation Fund: A structure that allows a PE firm to roll an existing portfolio company (or group of companies) into a new fund, often to give the firm more time to create value or to provide liquidity to existing investors while retaining ownership. These have become increasingly popular as firms hold onto high-performing assets longer.

Compensation & Incentives

• Carry (Carried Interest): The share of profits GPs earn if a fund performs well, usually around 20%.

• Equity Rollover: When management invests their own equity into the deal, aligning incentives with the PE firm.

Boardroom Buzzwords

• Governance Rights: Terms that define how much say the PE firm has in company decisions.

• Alignment: Ensuring management’s goals match investor goals, especially around exit timing.

• Downside Protection: Safeguards PE firms build in to minimize losses if the deal underperforms.

Bottom line: By mastering this language, corporate executives can quickly build credibility and confidence in PE conversations.