Equity cheque

The equity cheque is what the fund puts in. It is a residual rather than an input: total uses are added up, everything that can be raised from other sources is deducted, and the sponsor writes the difference. That is why the phrase equity is the plug turns up in every description of a funding table.

Because it is a residual, it moves for reasons that have nothing to do with the price. Higher fees raise it. Existing borrowings that have to be repaid raise it. A lender funding half a turn less raises it. Management rolling over part of its proceeds lowers it. None of those change what the business is worth, and all of them change the return, because the return is measured against this number.

It is also the whole of the sponsor's exposure. The acquisition debt is non-recourse to the fund, so the cheque is the maximum that can be lost, and every return measure in a buyout is calculated against it. A sponsor that reduces its cheque by a fifth without changing anything else has raised its multiple of money by a quarter.

Two practical points sit around it. Funds have concentration limits, so a cheque above a certain size has to be shared with co investors or another sponsor, which is where club deals come from. And the cheque is drawn from investors when it is needed rather than held in advance, which is why the timing of the draw matters to the rate of return even when the multiple is unaffected.