Term of Focus - Private Placement


Private placement

Issues those are exempt from public-registration provisions in section 4-2 of the Securities Act of 1933. Hedge fund shares are generally offered as private placements, which are typically offered to only a few investors, rather than the general public. They must meet the following criteria:

  •   The issuer must believe that the buyer is capable of evaluating the risks of the transaction.
  •   Buyers have access to the same information that would appear in the prospectus of a publicly offered issue.
  •   The issuer does not sell the securities to more than 35 parties in any 12-month period.
  •   The buyer does not intend to sell the securities immediately for a trading profit.


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PIPEs

Acronym for private investments in public entities. Investments typically made by funds following Regulation D investment strategy.

Prime broker

A large bank or securities firm that provides various administrative, back-office and financing services to hedge funds and other professional investors. Prime brokers can provide a wide variety of services, including trade reconciliation (clearing and settlement), custody services, risk management, margin financing, securities lending for the purpose of carrying out short sales, record keeping, and investor reporting. A prime brokerage relationship doesn't preclude hedge funds from carrying out trades with other brokers, or even employing others as prime brokers. To compete for business, some prime brokers act as incubators for funds, providing office space and services to help new fund managers get off the ground.

Private-equity fund

Entities that buy illiquid stakes in privately held companies, sometimes by participating in leveraged buyouts. Like hedge funds, the vehicles are structured as private investment partnerships in which only qualified investors may participate. Such funds typically charge a management fee of 1.5% to 2.5%, as well as an incentive fee of 25% to 30%. Most private-equity funds employ lock-up periods of five to ten years, longer than those of hedge funds

Private placement

Issues those are exempt from public-registration provisions in section 4-2 of the Securities Act of 1933. Hedge fund shares are generally offered as private placements, which are typically offered to only a few investors, rather than the general public. They must meet the following criteria:

  •   The issuer must believe that the buyer is capable of evaluating the risks of the transaction.
  •   Buyers have access to the same information that would appear in the prospectus of a publicly offered issue.
  •   The issuer does not sell the securities to more than 35 parties in any 12-month period.
  •   The buyer does not intend to sell the securities immediately for a trading profit.



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