Private markets glossary

Terms A to Z

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Capital call

The fund asking LPs to pay in part of their commitment, with notice set in the fund’s documents, to make an investment or pay fees and expenses.Kai, the GP: “I call it when I need it, not before.” Leo, the LP: “So I keep cash ready for calls I can’t time.”

Carried interest

The GP’s share of a fund’s profits, commonly 20 per cent, paid after LPs get their capital back and usually a preferred return. Also called carry. Read the explainerKai, the GP: “It’s the reward for doing well.” Leo, the LP: “Only on real profit, and only after I’m whole.”

Catch-up

A waterfall step after the preferred return where the GP receives most or all distributions until it has its agreed share of the profit so far. Read the explainer

Clawback

The GP’s obligation to give back carry it was paid but, over the whole fund, did not earn.Leo, the LP: “Who guarantees it, and is any carry held in escrow?”

Closed-end fund

A fund with a fixed life, often around ten years, that raises money once, calls it over time and returns it as investments are sold. There is normally no right to withdraw early.

Co-investment

An investment made by an LP directly into a company alongside a fund, often with lower or no fees.

Commitment

The amount an LP agrees to invest in a fund over its life. It is paid in through capital calls, not on day one.

Commitment pacing

Planning how much to commit to new funds each year so that the amount invested stays near target and there is cash for future calls. Read the explainer

Continuation fund

A new vehicle, set up by a GP, that buys one or more assets from an older fund it manages, so existing LPs can sell or roll into the new vehicle.

Denominator effect

When listed assets fall faster than private ones are marked down, the private share of a portfolio rises above target even though nothing was bought.

Distribution

Cash (or sometimes shares) a fund pays back to its LPs, usually after selling an investment.

DPI

Distributions to paid-in capital: cash returned to LPs divided by what they have paid in. The realisation multiple. Read the explainerLeo, the LP: “The only multiple I can spend.”

Dry powder

Capital committed to funds but not yet called and invested.

ELTIF

European long-term investment fund: an EU fund label for long-term, illiquid investments, revised in 2023 to widen access. Read the explainer

Evergreen fund

A fund with no fixed end date that takes new money and offers limited, periodic redemptions at a NAV-based price. Often called semi-liquid. Read the explainerLeo, the LP: “How often, how much, and who goes first?”

Fee offset

Reducing the management fee by transaction, monitoring or other fees the GP charges portfolio companies.

Fund of funds

A fund that invests in other private funds, giving access and diversification for an extra layer of fees.

Gate

A cap on how much investors can redeem from a fund in one window. Requests above it are usually met pro rata. Read the explainer

GP

General partner: the fund’s manager, which raises the fund, makes and manages the investments and earns fees and carry.Kai, the GP: “That’s me.”

GP commitment

The GP’s own investment in its fund alongside LPs. Typically a few per cent; how it is funded (cash, fee waiver, loans) matters as much as the size. Read the explainer

Hurdle rate

See preferred return.

Interval fund

A US closed-end fund that makes periodic repurchase offers, every three, six or twelve months, for 5 to 25 per cent of its shares. Read the explainer

IRR

Internal rate of return: the discount rate that sets the net present value of all a fund’s cash flows to zero. It rewards early cash, so timing moves it. Read the explainer

J-curve

The pattern of a private fund’s cash flows and early returns: negative at first, as capital is called and fees paid, then rising as investments are sold. Read the explainer

Key person clause

A term that pauses or ends the fund’s investment period if named senior people leave or stop devoting enough time.

LP

Limited partner: an investor in a fund, such as a pension, endowment, insurer, sovereign fund, family office or individual.Leo, the LP: “That’s me.”

LPA

Limited partnership agreement: the fund’s legal contract, setting fees, carry, the waterfall, the investment period, governance and LP rights.

LPAC

Limited partner advisory committee: a small group of LPs the GP consults on conflicts of interest and certain approvals.

LTAF

Long-term asset fund: a UK open-ended fund for illiquid assets, with redemptions no more often than monthly and at least 90 days’ notice. Read the explainer

Management fee

A yearly fee paid to the GP to run the fund, often 1.5 to 2 per cent, charged on commitments early in the fund’s life and on invested capital later. Read the explainer

MOIC

Multiple on invested capital: total value (realised plus unrealised) divided by capital invested. Often quoted gross, at deal level.

NAV

Net asset value: what the fund says its remaining investments are worth, less liabilities. Private assets are revalued at fair value at each reporting date.Leo, the LP: “An estimate until somebody pays it.”

Paid-in capital

The part of LPs’ commitments that has actually been called and paid into the fund.

PME

Public market equivalent: a way to compare a private fund’s cash flows with what the same money would have earned in a listed index.

Preferred return

A minimum annual return, often 8 per cent, that LPs receive (after their capital) before the GP earns carry. Also called the hurdle. Read the explainer

RVPI

Residual value to paid-in capital: the fund’s NAV divided by what LPs have paid in. The unrealised multiple. Read the explainer

Secondaries

Buying or selling existing interests in private funds or assets, rather than committing to new funds.

Subscription line

A loan to the fund, secured on LPs’ uncalled commitments, used to delay capital calls. It can lift IRR without changing the multiple much. Read the explainer

TVPI

Total value to paid-in capital: distributions plus NAV, divided by paid-in capital. DPI plus RVPI. Read the explainer

Uncalled commitment

The part of a commitment the fund has not yet called. Also called unfunded commitment. Read the explainer

Vintage year

The year a fund starts investing (definitions vary). Funds of the same vintage are compared with each other.

Waterfall

The order in which a fund’s distributions are split between LPs and the GP: capital, preferred return, catch-up, then the profit split. Read the explainer

Education only. Definitions are simplified and general; each fund’s documents set its own terms. Not investment, legal or tax advice. Kai and Leo are fictional characters.