The private-funds glossary.
The terms behind every capital account statement, defined plainly and tied to how they are calculated.
IRR (internal rate of return)
The annualised discount rate at which the net present value of a fund's cash flows — contributions out, distributions an…
MOIC (multiple on invested capital)
Total value — distributions plus residual value — divided by capital invested. A 2.0x MOIC means each dollar invested ha…
DPI (distributions to paid-in capital)
Cumulative distributions returned to LPs divided by cumulative capital paid in. DPI is the cash-on-cash measure: a DPI a…
RVPI (residual value to paid-in capital)
Net asset value of the fund's remaining holdings divided by cumulative capital paid in — the unrealised half of TVPI.…
TVPI (total value to paid-in capital)
DPI plus RVPI: everything LPs have received plus everything still held, divided by what they paid in. TVPI is the fund-l…
PME (public market equivalent)
A family of methods — KS-PME, Direct Alpha, Long-Nickels — that compare a private fund's cash flows to what the same cas…
NAV (net asset value)
The value of a fund's assets less its liabilities at a point in time — the basis for capital accounts, RVPI, management…
Capital call (drawdown)
A notice from a GP requiring LPs to fund a portion of their commitment — for investments, fees or expenses — by a stated…
Unfunded commitment
The portion of an LP's total commitment not yet called. It declines with each capital call and can increase when distrib…
Distribution waterfall
The ordered set of tiers that governs how proceeds are split between LPs and the GP: typically return of capital, prefer…
Preferred return (pref)
A return — commonly 8% per year — that LPs must receive on contributed capital before the GP participates in profits. It…
Hurdle rate
The minimum return threshold that must be met before carried interest is earned. Often used interchangeably with preferr…
GP catch-up
A waterfall tier in which the GP receives most or all distributions after the preferred return is met until the GP has r…
Carried interest (carry)
The GP's share of fund profits — typically 20% — earned once the waterfall's earlier tiers are satisfied. It is the prim…
Clawback
A provision requiring the GP to return previously received carried interest if, at the end of the fund's life (or at int…
Management fee
An annual fee — commonly 1.5–2% — paid by the fund to the manager, usually on committed capital during the investment pe…
Side letter
A separate agreement between the GP and an individual LP granting terms that differ from the LPA: fee breaks, reporting…
MFN (most favoured nation) clause
A side-letter provision letting an LP elect any more favourable term granted to another LP, usually within a size tier a…
LPA (limited partnership agreement)
The governing document of a fund: commitments, fees, waterfall, governance, term, key-person provisions, reporting oblig…
Capital account
An LP's running balance in the fund: contributions, less distributions, plus allocated income and gains, less allocated…
ILPA Reporting Template
A standardised format from the Institutional Limited Partners Association for disclosing management fees, expenses, offs…
GP commitment
The capital the general partner commits to its own fund alongside LPs — often 1–3% of total commitments — to align incen…
Subscription line of credit
A fund-level credit facility secured by LPs' unfunded commitments, used to bridge investments before calling capital.…
Recallable distribution
A distribution the GP may call again under the LPA — typically returned capital from investments realised within a set p…
Investor reporting
The periodic package a fund delivers to LPs: capital account statement, fund financials, portfolio update, performance m…
Investor portal
A secure, branded website where LPs view capital accounts, notices, documents, performance and tax forms, and complete a…
Schedule K-1
The IRS form a partnership issues to each partner reporting that partner's share of the partnership's income, deductions…
Form PF
A confidential SEC filing that registered investment advisers to private funds with at least $150 million in private fun…
Equalization
The true-up applied when investors join a closed-end fund at a later close: late-closing LPs contribute their share of c…
Continuation fund
A new vehicle, sponsored by the same GP, that buys one or more assets from an existing fund so the GP can keep managing…
NAV facility
A loan to a fund secured against the net asset value of its portfolio rather than against investors' unfunded commitment…
Management fee offset
A reduction in the management fee LPs pay equal to some or all of the transaction, monitoring, director and other fees t…
High-water mark
The highest net asset value per share or per investor on which a performance fee has previously been paid. A manager ear…
American waterfall (deal-by-deal)
A distribution waterfall in which carried interest is calculated and paid deal by deal as each investment is realised, r…
European waterfall (whole-fund)
A distribution waterfall in which the GP receives carried interest only after LPs have received all contributed capital…
Carry escrow
A holdback of part of the carried interest paid to the GP, kept in reserve to fund any future clawback obligation.…
Carried interest vesting
The schedule on which individual partners and employees of a GP earn their allocated share of carried interest, typicall…
Distribution in kind
A distribution of securities — typically shares of a portfolio company after an IPO — to LPs instead of cash.…
Capital commitment
The total amount an LP agrees to invest in a fund over its life, drawn down through capital calls as the GP needs it.…
Investment period
The period, typically four to six years after first close, during which a closed-end fund may make new investments.…
Fund term extension
An extension of a fund's life beyond its stated term — commonly one or two one-year extensions — to allow remaining inve…
Key person clause
An LPA provision that suspends the fund's investment period if named key individuals stop devoting sufficient time to th…
LPAC (limited partner advisory committee)
A committee of LP representatives that advises the GP on conflicts of interest, valuations and other matters the LPA res…
General partner (GP)
The entity that manages a private fund organised as a limited partnership, bears its liabilities and earns carried inter…
Limited partner (LP)
An investor in a private fund organised as a limited partnership, whose liability is limited to its commitment and who d…
Feeder fund
A vehicle that pools investors and invests all its capital into another fund (the master or main fund), often to accommo…
Master-feeder structure
A structure in which one or more feeder funds — often a US vehicle and an offshore vehicle — invest in a single master f…
Blocker corporation
A corporate entity placed between a fund and certain investors — commonly tax-exempt or non-US investors — to prevent th…
Alternative investment vehicle (AIV)
A separate vehicle a fund uses to make a particular investment, usually for tax or regulatory reasons, with the same inv…
Parallel fund
A fund that invests alongside the main fund in the same deals, in fixed proportions, for investors who need a different…
Co-investment
An investment made directly alongside a fund in a specific deal, by LPs or third parties, usually with reduced or no fee…
Special purpose vehicle (SPV)
A single-purpose entity formed to hold one investment for a group of investors, common in venture syndicates and co-inve…
Vintage year
The year a fund begins investing, usually its first close or first capital call, used to compare funds that faced simila…
J-curve
The typical pattern of a private fund's returns: negative in early years as fees and costs precede gains, then rising as…
Gross vs net returns
Gross returns measure investment performance before management fees, fund expenses and carried interest; net returns are…
Dry powder
Committed capital that has not yet been called or invested — at a fund level, roughly its unfunded commitments available…
UBTI (unrelated business taxable income)
Income that a US tax-exempt investor, such as an endowment or pension, must pay tax on despite its exempt status — commo…
ECI (effectively connected income)
Income of a non-US person treated as connected with a US trade or business, which can create US filing and withholding o…
Schedule K-3
An IRS schedule issued with a partnership's K-1 reporting partners' shares of items of international tax relevance, such…
Due diligence questionnaire (DDQ)
A standard questionnaire LPs send GPs during fundraising and monitoring, covering strategy, team, operations, compliance…
Fair value (ASC 820)
The price that would be received to sell an asset in an orderly transaction between market participants at the measureme…
Promote
In real estate, the sponsor's share of profits above its pro-rata equity share, earned once investors reach specified re…
LP default
An LP's failure to fund a capital call by the due date, triggering remedies set out in the LPA such as interest, forced…
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