Limited Partner & Private Markets Glossary

A limited partner (LP) is an investor who commits capital to a fund — such as a venture or private equity fund — but does not manage it. LPs include pension funds, endowments, family offices, foundations, and sovereign wealth funds.

A fund of funds (FoF) is a fund that invests in other funds rather than directly in companies or assets. It offers LPs diversified access to many managers through a single commitment.

A family office is a private firm that manages the investments and affairs of a wealthy family. Family offices are increasingly active limited partners in venture and private equity funds.

A single-family office (SFO) manages the wealth of one family exclusively. SFOs are dedicated investment and administrative organizations for a single ultra-high-net-worth family.

A multi-family office (MFO) manages the wealth of several families, sharing infrastructure and investment access across clients. MFOs give families institutional-grade services at lower cost than a dedicated single-family office.

An endowment is a permanent investment fund supporting an institution such as a university or hospital. Endowments are long-horizon limited partners and pioneered heavy allocations to private markets.

A sovereign wealth fund (SWF) is a state-owned investment fund built from a country’s reserves or resource revenues. SWFs are among the largest limited partners in the world.

A pension fund manages retirement savings on behalf of workers, investing contributions to meet future payouts. Public and private pension funds are the largest single source of capital for private markets.

Insurance companies are major institutional limited partners that invest premium float and reserves into private markets to earn returns in excess of their liability obligations. Their very long investment horizons make them natural allocators to illiquid alternatives.

Corporate venture capital (CVC) is venture capital funded and managed by a corporation — often a large incumbent in a sector — to invest in startups that are strategically relevant to its core business. CVC arms also act as LPs in external VC funds.

A development finance institution (DFI) is a government-backed entity that provides capital to private sector investments in developing or emerging markets with the dual mandate of generating returns and promoting economic development.

A high-net-worth individual (HNWI) is an individual with investable assets typically exceeding $1 million. Many HNWIs and ultra-high-net-worth individuals (UHNWIs) invest directly into private funds as limited partners, often through family offices.

A family foundation is a private foundation established by a wealthy family to pursue philanthropic goals. Many family foundations invest their endowment in private markets — including venture and private equity funds — to generate returns that fund grantmaking.

ESG stands for Environmental, Social, and Governance — three criteria used to evaluate the sustainability and societal impact of investments. Many institutional LPs now require funds to report on ESG metrics or integrate ESG into investment decisions.

The denominator effect occurs when a drop in an LP's public market portfolio shrinks total assets (the denominator), pushing the private markets allocation above its policy target — forcing the LP to pause new fund commitments even though nothing changed in private markets.

UBTI is income that would cause otherwise tax-exempt US investors — endowments, foundations, pensions, IRAs — to owe tax. Private funds generate it mainly through leverage and operating partnerships, which is why tax-exempt LPs often invest through offshore blocker structures.

A general partner (GP) is the firm that raises, manages, and makes investment decisions for a fund. GPs earn a management fee and a share of profits (carried interest) in exchange for managing limited partners’ capital.

The limited partnership agreement (LPA) is the legal contract that governs a private fund — defining the relationship between the general partner and limited partners, including fees, terms, and governance.

Dry powder is committed capital that a fund has raised but not yet invested. High dry powder across the industry means there is a large amount of capital waiting to be deployed into deals.

A co-investment is a direct investment an LP makes into a specific deal alongside a fund, usually with reduced or no fees. Co-investments let LPs increase exposure to chosen deals and lower their blended cost.

Secondaries are the buying and selling of existing fund interests or portfolios before a fund winds down. The secondary market gives otherwise-illiquid private fund stakes a way to change hands.

Assets under management (AUM) is the total market value of the investments a firm manages on behalf of its clients. It is the most common measure of an investment firm’s scale.

Venture capital (VC) is a form of private equity that provides financing to early-stage, high-growth companies in exchange for equity. VC funds raise capital from limited partners and invest across seed, Series A, and later rounds.

Private equity (PE) is an asset class that invests in privately held companies — most often through buyouts, growth equity, or venture capital. PE funds raise capital from limited partners and seek to improve and exit portfolio companies for a profit.

Growth equity is a private investment strategy that provides capital to established, profitable companies seeking to expand — without taking full control as in a buyout. It sits between venture capital and traditional private equity.

Private credit is a form of lending where funds — rather than banks — provide loans or other debt instruments directly to companies. It has grown into one of the largest alternative asset classes, particularly after banks retreated from mid-market lending.

Real assets are physical or tangible investments — including real estate, infrastructure, natural resources, and commodities — that provide inflation protection and stable income. They are a core allocation for many institutional LPs.

An infrastructure fund invests in long-lived physical assets — such as toll roads, airports, energy grids, pipelines, and broadband networks — that provide essential services. Infrastructure is prized for its predictable, inflation-linked cash flows.

A hedge fund is a private investment fund that uses a wider range of strategies than traditional funds — including short selling, leverage, and derivatives — to generate absolute returns regardless of market conditions.

Impact investing targets investments that generate measurable positive social or environmental outcomes alongside financial returns. It ranges from ESG integration in public markets to specialized private funds focused on climate, health, or financial inclusion.

Net asset value (NAV) is the total value of a fund's assets minus its liabilities, representing the current estimated worth of LP interests. In private funds, NAV is typically reported quarterly based on manager valuations.

A capital account is an LP's running ledger within a fund — tracking their paid-in contributions, allocated income and losses, and cumulative distributions. It represents the LP's economic interest in the partnership.

Capital recycling allows a fund to reinvest early distributions back into new investments, effectively increasing the amount deployed beyond the original commitments. It extends a fund's investment capacity without requiring more capital from LPs.

A continuation fund is a vehicle that allows a GP to roll select portfolio companies from an existing fund into a new fund, giving existing LPs the option to cash out or roll over, while new investors can buy in.

A GP-led secondary is a transaction initiated by the fund manager (GP) rather than an LP, typically involving rolling portfolio assets into a new vehicle or creating a continuation fund. It has become a major liquidity mechanism in private markets.

A blind pool is a fund in which LPs commit capital before the GP has identified specific investments. LPs trust the GP's strategy and judgment rather than investing in a known set of assets.

The fund term is the maximum lifespan of a private fund as defined in the LPA — most commonly 10 years — after which the fund must wind down and return all capital to LPs.

The investment period is the window — usually 3–5 years — during which a fund can make new investments using LP capital. After it closes, the fund enters the harvesting phase and can only do follow-ons.

The harvest period is the latter phase of a fund's life — after the investment period — when the GP focuses on exiting portfolio companies and returning capital to LPs rather than making new investments.

A portfolio company is a business in which a private equity, venture capital, or other alternative investment fund has made an investment. The fund's GPs typically take board seats and work actively with portfolio company management.

An exit is the event at which a private fund sells its stake in a portfolio company and realizes cash returns — through an IPO, strategic acquisition, secondary sale, or management buyout.

A leveraged buyout (LBO) is the acquisition of a company using a significant portion of borrowed money (debt) alongside equity from a private equity fund. The target company's cash flows typically service the debt, amplifying equity returns.

Venture debt is a form of debt financing provided to venture-backed startups, typically alongside or after an equity round. It gives companies non-dilutive capital to extend runway or fund working capital without a new equity valuation.

Deal flow is the rate and quality of investment opportunities a fund manager sees. Strong proprietary deal flow — relationships that surface deals before they are widely marketed — is one of the most important competitive advantages for a GP.

Over-commitment is an LP strategy of committing more capital across funds than the LP can actually fund at once, relying on the fact that capital calls are spread over many years and early distributions partially offset future calls.

A qualified purchaser (QP) is an individual or institution with at least $5 million in investments. Funds with only QP investors can accept up to 499 investors under the 3(c)(7) exemption — a higher limit than the 100-investor 3(c)(1) exemption.

An accredited investor is an individual or entity that meets the SEC's wealth or income thresholds — enabling them to invest in unregistered securities, including private fund offerings under Regulation D.

The 3(c)(1) exemption allows a private fund to avoid Investment Company Act registration if it has fewer than 100 beneficial owners (250 for certain qualifying funds). Most small and emerging manager funds rely on this exemption.

The 3(c)(7) exemption allows a private fund to have up to 499 beneficial owners — but all must be "qualified purchasers" with at least $5 million in investments. It is used by larger funds with many institutional LPs.

Regulation D is a set of SEC rules that provide exemptions from securities registration for private placements — including most private fund capital raises. Rule 506(b) and 506(c) are the most commonly used exemptions.

A subscription credit facility (or "sub line") is a loan to a fund secured by its LPs' uncalled capital commitments. GPs use it to close deals quickly and batch capital calls — which also flatters reported IRR by delaying when LP capital is actually drawn.

NAV financing is a loan to a fund secured by the value of its portfolio (net asset value) rather than uncalled LP commitments. Funds use it late in their life — after commitments are drawn — to fund follow-ons, support portfolio companies, or accelerate distributions to LPs.

An evergreen fund is a private markets vehicle with no fixed end date: it continuously accepts new capital, recycles proceeds into new investments, and offers investors periodic (usually quarterly, capped) liquidity instead of waiting for a 10-year fund term.

A drawdown fund is the traditional private markets structure: LPs commit capital up front, but the GP "draws it down" via capital calls only as investments are made — typically over a 3-5 year investment period within a 10-year fund life.

A capital commitment is the total amount of money a limited partner pledges to a fund. The capital is not paid upfront — it is drawn down over time through capital calls as the fund makes investments.

A capital call (or drawdown) is a request from the fund’s general partner asking limited partners to transfer a portion of their committed capital, usually to fund a new investment or pay fund expenses.

A first close is the point at which a fund has secured enough commitments to begin investing, even while continuing to raise more capital toward its target. Investors who join at first close are early backers.

A final close is the point at which a fund stops accepting new commitments. The total capital raised at final close becomes the fund’s final size.

A fund’s size is the total capital committed to it by all investors (including the GP). It is set at final close and determines how much the fund can deploy.

An anchor investor is a large, early limited partner whose commitment helps a fund reach a first close and signals credibility to other investors. Anchors often negotiate preferential terms.

A placement agent is an intermediary that helps fund managers raise capital from limited partners. They are paid a fee (typically 1–2% of capital raised) and leverage their LP relationships to accelerate fundraising.

A gatekeeper is an investment consultant or advisory firm that screens and recommends alternative investment managers on behalf of pension funds, endowments, and other institutional LPs. Approval by a major gatekeeper can significantly expand a manager's fundraising reach.

Due diligence is the comprehensive investigation an LP conducts before committing to a fund — covering investment strategy, team track record, fund terms, legal documents, operational infrastructure, and reference checks.

A private placement memorandum (PPM) is the legal document a fund provides to prospective investors during fundraising, describing the fund's strategy, terms, risks, GP biographies, and financial information.

A subscription agreement is the legal contract an LP signs to commit capital to a fund. It collects the LP's personal and entity information, confirms their investor qualifications (accredited investor / qualified purchaser), and sets out the terms of their commitment.

An investment mandate is the set of parameters within which an LP is authorized to invest — defining allowed asset classes, geographies, check sizes, fund vintages, manager criteria, and return targets. Understanding a target LP's mandate is critical for effective fundraising outreach.

An emerging manager is typically a first-time or early-vintage fund manager — raising Fund I or Fund II — who lacks a long institutional track record. Emerging managers face higher fundraising barriers but offer LPs the chance to access potentially higher-returning early funds.

A hard cap is the maximum amount of capital a fund will accept from limited partners. Once the hard cap is reached, the fund is closed to additional capital regardless of demand.

A most favored nation (MFN) clause in an LP's side letter entitles them to any more favorable terms granted to any other LP in the fund, ensuring they are never treated worse than the best-treated investor.

Pro-rata rights entitle an investor — LP or direct investor — to participate in future funding rounds at their proportional ownership level, preventing dilution as additional capital is raised.

A side letter is a bilateral agreement between a fund's GP and an individual LP that grants that LP rights or terms beyond what is in the standard LPA — such as lower fees, additional reporting, or co-investment rights.

The LP Advisory Committee (LPAC) is a group of LP representatives that advises the GP on conflicts of interest, valuation disputes, fund term extensions, and other governance matters. LPAC approval is required for many significant fund decisions.

A key person clause in an LPA suspends the fund's investment period if specified key investment professionals leave or are no longer dedicating sufficient time to the fund, protecting LPs from continuity risk.

ILPA (Institutional Limited Partners Association) is the industry body representing institutional LP investors. It publishes best-practice guidelines on fund terms, fee transparency, reporting standards, and governance that have shaped private market standards globally.

Warehousing means making investments before a fund closes — held personally, by the management company, or via SPVs — with the intention of transferring them into the fund once it closes. Emerging managers use warehoused deals to show LPs a live portfolio rather than an empty thesis.

Carried interest, or "carry," is the share of a fund’s profits paid to the general partner as performance compensation — most commonly 20% of gains above a hurdle rate.

A management fee is the annual fee a fund charges to cover operating costs, typically around 2% of committed (then invested) capital. It is paid to the general partner regardless of fund performance.

A hurdle rate (or preferred return) is the minimum annual return a fund must deliver to limited partners before the general partner can collect carried interest — commonly around 8%.

A distribution waterfall is the order in which a fund’s profits are split between limited partners and the general partner — typically: return of capital, then preferred return, then GP catch-up, then the carry split.

A clawback provision requires a general partner to return carried interest it was overpaid if later losses mean limited partners did not receive their agreed share of profits.

The GP commit is the capital a fund’s managers invest into their own fund, aligning their interests with LPs. It is commonly around 1–5% of total fund size.

A recallable distribution is a return of capital that the GP can call back if the fund needs additional capital during the investment period. Unlike true gains distributions, recallable distributions increase the LP's unfunded commitment.

Preferred equity is an investment structure that gives investors a priority claim on returns — above common equity holders — in exchange for a defined return or priority distribution. It sits between debt and common equity in the capital stack.

A catch-up clause lets the GP receive most or all profit distributions after LPs get their preferred return, until the GP has "caught up" to its full carried interest percentage on all profits — not just profits above the hurdle.

A management fee offset reduces the management fee LPs pay by some or all of the other fees a GP collects from portfolio companies — transaction, monitoring, advisory, or director fees. A "100% offset" means every dollar of such fees reduces LP-paid management fees dollar for dollar.

A fund’s vintage year is the year it makes its first investment (or holds its first close). Vintage year is used to compare funds raised in similar market conditions.

The J-curve describes the typical return path of a private fund: negative early on (as fees and early markdowns hit) before turning positive as investments mature and distributions begin.

DPI (distributions to paid-in) measures how much cash a fund has actually returned to investors relative to the capital they paid in. A DPI of 1.0x means investors have gotten their money back.

TVPI (total value to paid-in) measures a fund’s total value — realized distributions plus remaining unrealized value — relative to capital paid in. It captures both cash returned and paper value.

MOIC (multiple on invested capital) is the ratio of total value created to the amount of capital invested. A 3x MOIC means an investment is worth three times the money put in.

IRR (internal rate of return) is the annualized, time-weighted rate of return of a fund’s cash flows. It accounts for the timing of capital calls and distributions, not just the total multiple.

RVPI (residual value to paid-in) measures the unrealized portion of a fund's value — the remaining NAV — relative to capital paid in. TVPI = DPI + RVPI.

The public market equivalent (PME) compares a private fund's cash flows to a hypothetical investment in public markets — helping LPs assess whether the illiquidity premium was worth taking.

A benchmark is the performance standard against which a fund's returns are measured. In private markets, common benchmarks include public indices (via PME), peer group medians from data providers like Cambridge Associates and Preqin, and the hurdle rate.

Valuation in private markets is the process of estimating the fair value of an investment — a portfolio company or fund stake — that does not have a readily observable market price.

A fund manager's track record is their history of realized investment performance across previous funds. It is the single most important factor LPs evaluate when deciding whether to commit to a new fund.