Glossary of Alternative Investing Terms

Alternative Investments: Non-traditional assets outside of stocks, bonds, and cash—typically includes private equity, venture capital, real estate, infrastructure, hedge funds, and private credit.

• Synonyms: Private markets, non-traditional investments, illiquid assets

LP (Limited Partner): An investor in a private fund. LPs contribute capital but do not manage the fund directly.

• Synonyms: Investor, backer, capital provider

GP (General Partner): The manager of a private fund. GPs raise money from LPs, make investment decisions, and oversee the fund.

• Synonyms: Fund sponsor, investment manager, asset manager

Capital Call (a.k.a. Drawdown Notice): A request by the GP for a portion of committed capital from LPs to fund investments.

• Synonyms: Drawdown, contribution request, funding notice

Distribution (a.k.a. Return of Capital): Cash or stock returned to LPs when an investment is realized or income is earned.

• Synonyms: Proceeds, capital return, disbursement

K-1 (Schedule K-1): A tax document issued to LPs that outlines each partner’s share of income, losses, and dividends from a fund.

• Synonyms: Tax statement, partnership return, pass-through tax form

NAV (Net Asset Value): The total value of a fund’s assets minus its liabilities. Typically reported quarterly.

• Synonyms: Portfolio value, fund value, net equity

IRR (Internal Rate of Return): A measure of the fund’s annualized rate of return over time, factoring in cash flows and timing.

• Synonyms: Time-weighted return, net performance rate, annualized yield

MOIC (Multiple on Invested Capital): A simple ratio comparing the total value returned to the amount of capital invested.

• Synonyms: Return multiple, investment multiplier, gross multiple

TVPI (Total Value to Paid-In): The ratio of the current value of remaining investments plus distributions to the amount of capital paid into the fund.

• Synonyms: Value ratio, performance metric, total return index

DPI (Distributions to Paid-In): The ratio of total distributions returned to LPs relative to the amount of capital they contributed.

• Synonyms: Realized return, liquidity multiple, payout ratio

Commitment (a.k.a. Committed Capital): The total amount an LP agrees to invest in a fund over its life.

• Synonyms: Pledge, allocated capital, subscribed amount

Due Diligence (a.k.a. Investment Evaluation): The process of researching and evaluating a fund, company, or manager prior to investing.

• Synonyms: Pre-investment review, vetting process, risk assessment

Fund Lifecycle (a.k.a. Fund Timeline): The phases a private fund goes through—typically fundraising, investing, monitoring, and exiting.

• Synonyms: Investment cycle, fund maturity, capital life phases

Waterfall (a.k.a. Distribution Waterfall): The structure that dictates how profits are distributed among GPs and LPs in a fund.

• Synonyms: Payout structure, profit-sharing model, return allocation

Hurdle Rate (a.k.a. Preferred Return): The minimum rate of return a fund must achieve before the GP is entitled to receive carried interest.

• Synonyms: Return threshold, minimum benchmark, trigger rate

Carried Interest (Carry): The GP’s share of profits from the fund, typically earned after hitting the hurdle rate.

• Synonyms: Performance fee, promote, success-based compensation

Management Fee: The annual fee paid to the GP for managing the fund, usually calculated as a percentage of committed or invested capital.

• Synonyms: Admin fee, advisory fee, fund fee

Feeder Fund: An investment vehicle that pools capital from smaller investors into a master fund.

• Synonyms: Access fund, conduit fund, aggregation vehicle

Vintage Year: The year a fund begins investing. Used to compare performance across similar-aged funds.

• Synonyms: Fund inception year, investment start year, cohort year

Secondaries: Transactions involving the resale of existing fund interests from one LP to another.

• Synonyms: Secondary market deal, LP transfer, resale of interest

Fund-of-Funds: A pooled investment vehicle that invests in other funds rather than directly in companies or assets.

• Synonyms: Aggregator fund, umbrella fund, multi-manager vehicle

Co-Investment: A direct investment made alongside a fund.

• Synonyms: Sidecar deal, joint investment, direct participation

Subscription Documents: Legal paperwork LPs complete to join a fund.

• Synonyms: Sub docs, investor forms, fund admission packet

Administrator: Third-party firm handling fund accounting, investor communications, and compliance.

• Synonyms: Fund admin, back-office provider, financial agent

Custodian: Financial institution that holds and safeguards a client’s assets.

• Synonyms: Asset holder, safekeeping bank, trust provider

Evergreen Fund: An open-ended investment vehicle with no fixed termination date.

• Synonyms: Perpetual fund, rolling fund, ongoing structure

Continuation Fund: A vehicle set up to hold assets beyond the term of the original fund.

• Synonyms: Follow-on fund, rollover vehicle, extension SPV

GP-Led Secondary: A liquidity event initiated by the GP to restructure or extend fund assets.

• Synonyms: Sponsor-led deal, continuation event, secondary recap

Parallel Fund: A co-investment vehicle with the same strategy as a main fund.

• Synonyms: Sibling fund, mirror vehicle, co-fund

Side Letter: Custom agreement granting an LP specific terms outside the standard fund documents.

• Synonyms: Supplemental agreement, LP addendum, negotiated terms

Step-Down Clause: A provision that reduces the management fee after the investment period.

• Synonyms: Fee adjustment, tapering clause, post-deployment discount

Look-Through Reporting: Viewing underlying assets across multiple layers of fund structures.

• Synonyms: Transparency report, underlying exposure view, see-through analysis

Audit Trail: A chronological record of user or data activity for compliance.

• Synonyms: Log history, access record, traceability log

Data Room: A secure virtual platform for sharing documents during due diligence.

• Synonyms: Virtual deal room, diligence vault, investor portal

Operational Due Diligence (ODD): Evaluation of a fund’s internal controls, systems, and risks.

• Synonyms: Ops diligence, process audit, compliance check

Cross-Fund Exposure (a.k.a. Portfolio Overlap): The degree to which an LP’s investments overlap across multiple funds managed by the same sponsor.

• Synonyms: Portfolio overlap, manager concentration, allocation redundancy

Ratchet (a.k.a. Anti-Dilution Protection): A contractual provision in a fund or deal that adjusts the ownership percentage of investors or founders based on performance milestones or subsequent financing terms. In private equity or venture capital, ratchets often protect early investors by increasing their ownership if the company underperforms or future rounds are raised at lower valuations.

• Full Ratchet: Resets the investor’s share price to the new, lower price regardless of how much new capital is raised.
• Weighted Average Ratchet: Adjusts the share price in proportion to the amount raised and the price paid by new investors.
• Synonyms: Anti-dilution clause, equity adjustment mechanism, price protection provision