Glossary

A

Absolute return:

The absolute return refers to the amount of price gain or loss that an asset or portfolio achieves over a specified period. It is not compared to any benchmark or other investments. An absolute return investment strategy tries to generate positive returns regardless of whether markets are rising or falling — focusing on consistent returns with lower volatility.

Accredited investor:

An accredited investor is an individual or a business (high-net-worth individuals, banks, insurance companies, brokers and trusts) that is allowed to buy and sell securities that are not registered with financial authorities. This designation is given by satisfying at least one requirement regarding income, net worth, asset size, governance status, or professional experience under the rationale that such individuals or businesses are financially savvy enough to not require the protections afforded by regulatory disclosure filings. Full details are listed in Rule 501(a) of Regulation D under the Securities Act of 1933.

Alternative investments:

An alternative investment is a financial asset that does not fit into the conventional equity/income/cash categories. Private equity and private credit, venture capital, hedge funds, real property, commodities, and other tangible assets are all examples of alternative investments. Most alternative investments have fewer regulations from the U.S. Securities and Exchange Commission (SEC) and tend to be somewhat illiquid. While traditionally aimed at institutional or accredited investors, alternative investments have become feasible for retail investors via alternative funds. Common forms of alternative investments include real estate, commodities, cryptocurrency, and collectibles.

Asset-based finance (ABF):

Investment strategies where capital is provided to borrowers and secured by pools of tangible or financial assets that generate recurring cash flows. These assets can include loans, leases, receivables, equipment, real estate, or other contractual assets.

B

Bespoke:

Investment solutions, portfolios, or products that are custom-designed and tailored specifically to meet the unique objectives, preferences, and constraints of an individual investor or a group of investors, rather than being standardized or off-the-shelf offerings.

Black swan:

This term popularized by mathematician Nassim Taleb, refers to a rare and extreme event that has the potential to throw financial markets into turmoil. Many private market funds promote that they can protect against such events.

Blind pool:

A fund where capital is committed before the specific investments are identified.

Business development company (BDC):

A type of closed-end investment company, often publicly traded, that invests in small and mid-sized private U.S. businesses or financially distressed firms. BDCs provide these companies with capital — typically through loans or equity investments — and offer managerial assistance to help them grow or recover. For investors, BDCs offer access to private market investments with the added benefits of liquidity, transparency, and higher potential yields, though they also carry higher risks due to their focus on smaller or distressed companies.

Buyout:

A type of private equity fund that seeks to acquire controlling or majority ownership (typically more than 50%) of mature companies with established business models and predictable cash flows. The primary objective of a buyout fund is to improve the operations, efficiency, and value of the acquired company, often through strategic, operational, or financial restructuring, and then exit the investment at a higher valuation — usually via a sale to another company or through an initial public offering (IPO).

C

Capital call:

A request by the general partner (GP) for committed capital to be transferred from investors for deployment.

Carried interest (Carry):

The performance-based share of profits (typically 20%) received by the general partner (GP) after meeting a return hurdle.

Closed-end fund:

A closed-end fund issues a fixed number of shares through one initial public offering (IPO) to raise capital for its investments. Its shares can then be bought and sold on a stock exchange, but no new shares will be created, and no new money will flow into the fund.

Co-investment:

An opportunity to invest directly in a portfolio company alongside a lead sponsor/fund, typically with reduced fees or carried interest.

Commingled fund:

A pooled vehicle where capital from multiple investors is managed together by a general partner (GP).

Commitment/committed capital:

The total amount an investor agrees to contribute to a fund over time.

Commodities:

A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type — like precious metals, crude oil, natural gas, ethanol, corn, coffee, etc. Often investors view adding commodities to their portfolio as a hedge against inflation.

Continuation vehicle:

A new fund or special purpose vehicle (SPV) created to hold assets from an older fund, often used in GP-led secondary transactions.

Correlation:

This statistic measures the degree to which two variables move in the same direction with the same impact on performance, measured in a range of -1.0 to 1.0. For example, a correlation of -1.0 implies that the variables move inversely with one another while a correlation of 1.0 implies that the variables move in the same manner. A correlation of zero implies that there is no relationship between the movements of the variables (therefore implying perfect diversification).

Cryptocurrency:

A cryptocurrency is a form of digital asset based on a network that is distributed across many computers. This decentralized structure allows them to exist outside the control of governments and central authorities. Bitcoin, Dogecoin and Ethereum are examples of cryptocurrencies.

D

Derivatives:

The term refers to financial contracts, set between two or more parties, which derive their value from an underlying asset, a group of assets, or a benchmark. A derivative can trade on an exchange or via a broker-dealer.

Digital assets:

A digital asset is anything digital that has value, establishes ownership, and is discoverable. Since 2009, the term has come to refer to digitally formatted items that can be used to create value via tokenization on a blockchain, like cryptocurrency.

Distressed/special situations:

Strategies targeting companies or assets undergoing financial stress, bankruptcy, or turnaround situations.

Distributions to paid-in (DPI):

A metric showing how much cash has been returned to investors relative to what they contributed.

Distribution waterfall:

The order in which profits are shared among the limited partnership and the general partner (GP).

Diversification:

This method of risk management is designed to reduce the risk and volatility of a portfolio while potentially increasing the returns, through holding an array of different assets that have limited correlation to each other.

Drawdown fund:

Investment funds where investors commit a certain amount of capital up front but only transfer money to the fund as needed over time. The fund manager (general partner) issues capital calls or drawdowns to request portions of the committed capital when investment opportunities arise, rather than collecting all funds at once. This approach allows investors to keep their money elsewhere until it is required for actual investments.

Dry powder:

This term refers to the amount of cash or other liquid assets available for a fund to deploy, based on capital committed to the fund by investors.

E

Evergreen fund:

An open-ended structure without a fixed term, allowing continual capital contributions and periodic redemptions.

F

Feeder fund:

A subvehicle that aggregates capital from specific investor groups and invests into a master fund.

Fund of funds (FoF):

A strategy that invests in a portfolio of third-party private investment funds, offering diversification and manager access.

G

General partner (GP):

The managing entity of a fund, responsible for investment decisions, fundraising and compliance.

Growth equity:

Capital provided to companies looking to expand without giving up control; it's less risky than venture capital, more growth-oriented than buyouts.

H

Hedge fund:

A hedge fund pools investors’ money and invests it to generate positive returns, like a mutual fund. However, hedge funds are less regulated and have more flexibility to employ a wide variety of complex investment strategies, portfolio construction, and risk management techniques.

I

Illiquid investments:

Illiquid investments are those not easily convertible to cash or traded on public markets. These investments typically require longer investment horizons and may include assets such as private equity, venture capital and fine art. They can be higher risk, though potentially offer higher returns.

Incentive fee:

A performance-based compensation paid to an investment manager, fund manager, or sponsor as a reward for generating returns above a specified benchmark or hurdle rate. This fee is designed to align the interests of the manager with those of the investors by motivating the manager to maximize returns

Infrastructure:

Long-duration investments in essential physical assets, such as power grids, tolls and airports.

Initial public offering:

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Companies must meet requirements by exchanges and the Securities and Exchange Commission (SEC) to hold an IPO. IPOs provide companies with an opportunity to obtain capital by offering shares through the primary market. Companies hire investment banks to market, gauge demand, set the IPO price and date, and more. An IPO can be seen as an exit strategy for the company’s founders and early investors, realizing the full profit from their private investment.

Internal rate of return (IRR):

A metric used to evaluate investment performance, representing the annualized rate of return.

Interval fund:

A closed-end fund with limited liquidity windows, regulated under the Investment Company Act of 1940.

Investment advisor representative (IAR):

An investment adviser representative (IAR) is an individual who works for an investment advisory company (e.g., RIA, broker-dealer) and provides investment-related advice for a fee. IARs are limited in what advice they can provide based on which licenses they hold.

Investment Company Act of 1940:

The Investment Company Act of 1940 regulates the organization of investment companies and the activities in which they engage — setting standards for the investment company industry. The primary purpose of the Act is to protect investors by ensuring that they're aware of the risks associated with buying and owning securities. The Act gives the U.S. Securities and Exchange Commission (SEC) power to regulate investment trusts and investment counselors.

J

J-curve:

This is a line graph that illustrates the timeline of a fund, from deployment to harvest. The curve is formed by plotting returns against time, starting from the fund’s inception until its termination. It is shaped like the letter “j” because the early years usually produce negative returns — due to factors such as startup costs and management fees — followed by a recovery and investment gains in the later years when the underlying investments increase in value.

L

Leverage:

The use of borrowed money or securities by a fund manager to increase the potential return. The use of leverage will magnify both the potential gain and the potential loss from an investment.

Limited partnership (LP):

The most common legal structure in private investments; limited partnership provides capital, while the general partner manages the fund.

Liquid investments:

Investments with relatively higher liquidity. These investments aim to provide the same private market strategies but are more accessible to investors due to a lower required investment amount.

Liquidity:

Generally refers to how easily or quickly an asset or security can be converted into ready cash, without incurring high fees or penalties. Some private market assets can be relatively illiquid — for example, an investor may be required to keep their money in a hedge fund for a certain duration.

Litigation finance:

Funding lawsuits in exchange for a portion of the judgment or settlement.

M

Management fee:

An annual fee (typically 1.5% to 2.0%) paid to the general partner based on committed or invested capital.

Market-neutral strategy:

This strategy looks to minimize a fund’s exposure to the broad market through its design, which is uncorrelated with markets. As a result, these strategies are expected to generate relatively modest, consistent returns irrespective of market direction.

Master-feeder structure:

A framework that combines multiple feeder funds into one master fund to optimize tax and regulatory treatment across jurisdictions.

Mezzanine debt:

Subordinated debt that carries equity-like risk, often with warrants or conversion rights.

Multiple on invested capital (MOIC):

The total value generated relative to capital invested, not accounting for time.

N

Natural resources:

Exposure to assets like timberland, farmland, energy (oil, gas), and mining.

Net asset value (NAV):

The value of an investment fund that is determined by subtracting its liabilities from its assets. The fund's per-share NAV is then obtained by dividing NAV by the number of shares outstanding. NAV is the price at which the shares of the funds registered with the SEC, trade. NAV can change daily, therefore, per-share NAV can as well.

O

Open-end fund:

An open-end fund’s shares can be continuously issued to investors, and the fund also accepts a constant flow of fresh capital. New shares in an open-end fund are created whenever an investor buys them.

Opportunistic credit:

Flexible, higher-risk lending strategies that target a wide range of debt and structured investments — often in situations where traditional financing is unavailable or markets are dislocated. These strategies seek higher returns (typically 12% to 15% per year) by providing bespoke capital to companies that are healthy, stressed or distressed. Opportunistic credit managers may invest across the capital structure (debt, preferred equity, warrants) and often focus on special situations, market disruptions, or periods of illiquidity, aiming to capitalize on unique value opportunities.

P

Pledge fund:

A vehicle where investors evaluate and opt in to each deal individually, rather than committing blind pool capital upfront.

Preferred return (hurdle rate):

The minimum return that limited partnership must receive before the general partner can earn carried interest.

Private credit/private debt:

Nonbank loans to middle-market companies. Types include direct lending, unitranche, mezzanine, and distressed debt.

Private equity (PE):

Ownership of private companies through buyouts, growth investments, or venture capital. This actively managed type of investment consists of capital that is not listed on a public exchange. Private equity funds aim to generate returns by pooling investors’ capital and investing in private or public companies, with the goal of creating value by taking them private.

Private markets:

Private markets are where investors can invest in assets or financial instruments that are not listed on an exchange, such as the equity or debt of a private company. Private investments do not trade publicly. They are considered a subset of asset classes within the universe of alternative investments.

Public markets:

Public markets are where most individuals have access to buy and sell traditional investments such as the stocks of publicly listed companies, retail bonds and exchange-traded funds (ETFs).

Public market equivalent (PME):

This benchmarking method compares the performance of private equity investments against public market indices. It helps investors assess the returns generated by a private equity fund compared to the potential returns from investing in public markets over the same period.

Q

Qualified purchaser:

This investor classification includes, but is not limited to, any person or trust with at least $5M in qualified investments. For entities, generally $25M of qualified investments are required. Full details appear in Section 2(a)(51) of the Investment Company Act of 1940.

R

Real assets:

Investments in physical, tangible assets, like a building, a pipeline or timber, which are long-term in nature, are considered real assets. This also includes investments in real estate, infrastructure and commodities like gold and oil.

Real estate:

Investments in commercial, residential or industrial properties. Can be core, value-add or opportunistic strategies.

Registered investment advisor (RIA):

Registered investment advisors are financial firms that manage the assets of individual and institutional investors. RIAs must register with the U.S. Securities and Exchange Commission (SEC) or a state regulatory agency, depending on the value of assets under the RIA’s management. RIAs typically earn their income through management fees, calculated as a percentage of a client’s assets under management by the RIA. Unlike broker-dealers, RIAs have a fiduciary duty to put the best interests of the client first. An individual who works for an RIA is an investment advisor representative (IAR).

Royalties:

Payments to an investor based on revenue generated by an asset (e.g., intellectual property, natural resources). Investors provide capital in exchange for a percentage of future revenues, offering companies a non-dilutive financing alternative. Payments are typically a fixed or variable percentage of gross or net revenues, providing investors with predictable income streams.

Royalty-backed note:

A type of loan where investors provide capital to a company and are repaid through a set percentage of the company’s ongoing revenues, rather than fixed interest payments. These payments continue until the investors receive a predetermined total return (such as 1.5x their original investment) or until the note matures. This structure allows companies to raise capital without giving up equity, while investors benefit from regular payments tied to the company’s revenue performance.

Royalty financing:

Capital in exchange for a percentage of future revenues; common in life sciences and energy.

S

Secondaries:

The purchase of preexisting interests in private funds or direct portfolios, often at a discount to NAV.

Securities Exchange Commission (SEC):

The Securities and Exchange Commission (SEC) is the U.S. government oversight agency responsible for regulating the securities markets and protecting investors. The Securities Exchange Act of 1934 established the SEC, mainly in response to the stock market crash of 1929 in the lead-up to the Great Depression. The SEC is responsible for regulating financial markets and approving securities for sale to the public. The SEC brings civil action against those it alleges broke securities laws or regulations. The SEC also refers criminal cases to the U.S. Department of Justice (DOJ).

Separately managed account (SMA):

A customized investment account where the investor retains ownership of underlying assets and negotiates terms directly.

Short selling:

Also known as shorting, selling short or going short, this practice refers to the sale of a security that the seller has borrowed. The short seller believes that the borrowed security's price will decline, enabling it to be bought back at a lower price for a profit. The difference between the price at which the security was sold and the price at which it was purchased, represents the short seller’s profit or loss.

Special purpose vehicle (SPV):

A legal entity set up to hold a single investment or group of related assets. Often used for co-investments or secondary transactions.

Synthetic royalty:

A financial arrangement where an investor provides upfront capital to a company — often in the pharmaceutical or biotech sector — in exchange for a contractual right to receive a percentage of future revenues generated by a specific product, typically over a set period of time. Unlike traditional royalties, which are based on preexisting licensing agreements, synthetic royalties are created by the company itself and do not require the transfer of intellectual property or ownership. This structure allows companies to raise non-dilutive capital without giving up equity or taking on traditional debt, while investors gain exposure to the product’s future sales performance.

T

Tender offer fund:

These funds are a type of continuously offered closed-end fund that frequently price shares at net asset value (NAV) but are not listed on an exchange. They are regulated under the Investment Company Act of 1940 and are registered with the SEC. This structure combines flexible underlying investment options with the investor protections of SEC registration, such as transparency through frequent public filings, an independent board, and audited financial statements.

Thematic investing:

Sometimes referred to as megatrends investing, this approach focuses on predicted long-term trends instead of specific sectors or companies. This can include themes like artificial intelligence, clean energy and the subscription economy.

Total value to paid-in (TVPI):

A performance metric combining realized and unrealized value as a multiple of invested capital.

U

Unitranche debt:

A hybrid loan structure that combines senior and subordinated debt into one debt instrument. The borrower of this type of loan pays a blended interest rate that falls between the rate of the senior debt and subordinated debt. Rather than having separate loans with distinct terms and repayment priorities, unitranche financing streamlines the process by providing all the capital under a unified agreement.

V

Venture capital (VC):

Capital invested in the early stage or emerging companies with high growth potential.

Vintage year:

The year a fund begins deploying capital; used to benchmark performance.