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