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.

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.

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.

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 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.