Private Funds Glossary

Shorthand for the classic hedge fund (and PE) fee model: 2% annual management fee and 20% performance compensation. Market medians are now below it (roughly 1.5 and 17–20 depending on strategy and size).

Excludes a fund with no more than 100 beneficial owners (up to 250 for qualifying venture capital funds of limited size) that does not publicly offer its securities. Look-through rules apply to certain entity investors formed to invest in the fund.

Excludes a fund owned exclusively by 'qualified purchasers' with no public offering. No 100-investor cap, though funds stay under 2,000 holders of record to avoid Exchange Act §12(g) registration.

A 100% dividends-received deduction letting a U.S. C-corporation receive the foreign-source portion of dividends from a ≥10%-owned 'specified 10-percent owned foreign corporation' free of a second U.S. corporate tax, subject to a one-year holding period and the hybrid-dividend / §245A(e) limits.

A fund that qualifies as a 'trader' (rather than an 'investor') may elect to mark its securities to market at year-end: gains and losses become ordinary, so the capital loss limitations do not apply to the marked positions, and long-term capital-gain rates are forfeited. Under the §475(d)(1) coordination rules the §1091 wash-sale rules do not apply to losses under the regime, while the §1092 straddle rules continue to apply. Due by the prior-year unextended return date for an existing taxpayer; a new taxpayer elects in its books and records within 2 months and 15 days of the start of the election year (Rev. Proc. 99-17). Continues until properly revoked under the current procedures.

The traditional private placement: unlimited accredited investors, no general solicitation or advertising, investors self-certify accreditation. Technically allows up to 35 sophisticated non-accredited investors, which private funds do not use in practice.

Permits general solicitation (public advertising of the offering) but requires the issuer to take reasonable steps to verify accreditation, not mere self-certification. Under the SEC staff no-action letter to Latham & Watkins (Mar. 12, 2025), high minimum investments (at least $200,000 for individuals / $1,000,000 for entities) plus written representations (accredited status; minimum not third-party financed) satisfy reasonable steps absent contrary knowledge; the documentary methods (tax returns, brokerage statements, professional letters) remain available otherwise.

Treats payments on total-return (and other delta-one) swaps and certain options that reference U.S. equities as U.S.-source 'dividend equivalents': FDAP subject to 30% withholding (treaty-reducible) for non-U.S. holders, even though no actual dividend is paid.

Exempts foreign governments (including sovereign wealth funds) from U.S. tax on income from stocks, bonds and other securities. Does not cover income from commercial activities or from controlled commercial entities, nor gains from USRPIs held through a controlled commercial entity.

Lets an individual U.S. shareholder of a CFC elect to be taxed at corporate rates on Subpart F / NCTI inclusions, claiming the §250 deduction and an indirect §960 foreign tax credit. The previously-taxed earnings are taxed again as a dividend on actual distribution, but only to the extent they exceed the §962 tax. Made annually.

For carry holders, long-term capital gain treatment on applicable partnership interests generally requires a more-than-3-year holding period (instead of 1 year); shorter-held gains are recharacterized as short-term.

A partnership with ECI must withhold tax on each foreign partner's allocable share at the highest applicable rate, regardless of whether cash is distributed.

On a transfer of an interest in a partnership engaged in a USTB, the buyer generally must withhold 10% of the amount realized unless an exception certificate applies.

Limits how much of a business enterprise a PRIVATE FOUNDATION (plus its disqualified persons) may own: generally ≤20% (35% where unrelated parties control), with a 2% de minimis and a five-year disposition period for qualifying gifts and bequests (extendable by up to five more years where the statutory conditions are satisfied). Excess holdings draw an excise tax.

Polices transactions where a foreign entity acquires a U.S. corporation (or its assets) while the former U.S. owners keep a large continuing interest: ≥80% continuity treats the foreign 'parent' as a U.S. corporation; ≥60% denies inversion benefits. A substantial-business-activities test is the main exception.

The Reg D eligibility baseline: individuals with $1M+ net worth (excluding primary residence) or $200K/$300K (joint) income, certain licensed professionals, knowledgeable employees, and entities meeting asset tests. Nearly all private fund offerings are limited to accredited investors.

The EU regime for managing and marketing alternative funds. Non-EU managers marketing into Europe generally use country-by-country national private placement regimes (NPPRs), with registration, Annex IV reporting and, in some states, depositary-lite requirements, since the third-country passport never activated.

A vehicle the GP may form per the LPA for a specific deal whose structure does not suit the main fund, e.g., routing a U.S. operating investment through a blocker AIV for foreign/tax-exempt investors. Same economics, deal-specific structure.

LPA amendments typically require GP plus majority-in-interest consent, with higher thresholds (or per-investor consent) for economics, liabilities and commitment changes, plus GP-unilateral amendment rights for ministerial or tax/regulatory matters.

Carry is calculated and paid on each realized deal (after returning that deal's capital, fees and usually realized losses), long before the whole fund's capital is back.

The figure a manager markets and bills on, which is NOT the same as RAUM. Commercial AUM is usually NET of fund-level leverage and liabilities, often reflects only called / invested capital or net asset value, and may exclude proprietary or non-fee-paying accounts. RAUM, by contrast, is gross, includes uncalled commitments, and includes those accounts. Registration thresholds run on RAUM, so a manager can fall below its marketed AUM yet above a RAUM threshold (or the reverse).

Rule 506 is unavailable if the issuer or 'covered persons' (GPs, directors, executive officers, 20% holders, promoters, paid solicitors) have disqualifying events: criminal convictions, SEC orders, bars. Hence the bad-actor questionnaires that covered persons complete.

A minimum tax on large corporate groups (averaging ≥ $500M of gross receipts) that make deductible 'base-erosion' payments to foreign related parties, recomputing tax with those deductions added back at a set rate.

A corporation (U.S. or offshore) inserted between tax-sensitive investors and an investment so that UBTI/ECI 'stops' at the corporate level: the investor receives dividends or share gains rather than a flow-through allocation. UBTI is the tax-exempt investors' problem; ECI is the non-U.S. investors' problem. A corporate blocker solves both, but how much tax the corporation itself pays depends entirely on whether the underlying activity produces ECI.

State-level notice filings (and fees) for Reg D offerings: preempted substantively by federal law for Rule 506 offerings but still requiring Form D notice filings in each state where sales occur.

A second-layer 30% tax (treaty-reducible) on a foreign corporation's DIVIDEND EQUIVALENT AMOUNT: effectively connected earnings and profits reduced by earnings reinvested in U.S. net equity (and taxed later when that equity is withdrawn), approximating the dividend withholding a U.S. subsidiary's shareholder would bear. Key input when comparing U.S. vs. offshore blocker leakage.

A 15% minimum tax on the adjusted financial-statement (book) income of corporations whose AFSI averages over $1 billion across three years (aggregated with the related group).

The GP's demand that investors fund a portion of their commitment (typically on 10 business days' notice) for investments, fees or expenses. The defining mechanic of closed-end 'drawdown' funds.

The GP's share of profits, classically 20%, allocated through the distribution waterfall after investors receive capital back and (usually) a preferred return. Taxed as the underlying gains (subject to §1061's 3-year rule).

After the pref is paid, a tier in which the GP receives most or all distributions (100% market in buyouts; 80% or 50% are investor-favorable) until it has received its full carry percentage of profits, making the pref a hurdle rather than a permanent concession.

The dominant offshore jurisdiction: the ELP mirrors Delaware LP mechanics for offshore funds; the exempted company serves as blockers and corporate feeders. No Cayman tax; CIMA registration under the Private Funds Act now applies.

A foreign corporation more than 50% owned (vote or value) by 10%-U.S. shareholders. Such shareholders include Subpart F income and NCTI (formerly GILTI) currently, whether or not distributed.

Most non-per-se business entities can elect their U.S. tax classification: corporation, partnership, or disregarded entity. A central tool of fund structuring: a Cayman company can be a partnership for U.S. purposes, a Lux S.à r.l. can be disregarded, etc.

The GP's obligation to return excess carry at the end of the fund (or at interim true-ups) if cumulative distributions gave it more than its bargained percentage, usually net of taxes deemed paid.

Fixed term, committed capital drawn over time, no redemption rights; liquidity comes from distributions as assets are realized. The PE/VC/real estate standard, defined by the capital call and waterfall mechanics.

Investing alongside the fund in a specific deal, usually through a GP-controlled vehicle at reduced or no fee/carry, offered to large or strategic investors when a deal exceeds the fund's concentration limits.

The maximum capital an investor has contractually agreed to fund over the fund's life, called over time rather than paid upfront. Fund 'size' references aggregate commitments.

A pass-through fund's income is sourced to the states where it is earned; the states where it has nexus generally require it to file composite returns for, or withhold tax on, the distributive shares of nonresident investors.

Transactions where the GP's interests diverge from the fund's: affiliate transactions, cross-fund investments, fee arrangements, allocation of opportunities, GP-led secondaries. The LPA's answer is disclosure plus LPAC consent.

A new fund formed to buy one or more assets from an end-of-life fund, managed by the same GP; existing investors choose to sell (liquidity) or roll. Now a major exit route, with built-in conflicts (GP on both sides) addressed through LPAC consent, fairness opinions and competitive processes.

Operating a fund that trades commodity interests (futures, most swaps, certain FX) makes the GP a CPO by default, requiring CFTC registration and NFA membership, unless an exemption applies: Rule 4.13(a)(3) de minimis (≤5% margin / ≤100% notional) or Rule 4.7 relief for QEP-only funds.

The point at which a hedge fund's incentive allocation is measured against the high-water mark and becomes fixed, commonly annually, sometimes quarterly. Until crystallization, accrued incentive can reverse if performance falls back.

Reaches an adviser registered or required to be registered under §203 that has custody of client funds or securities. Custody arises three ways: holding the assets, any authority to obtain possession of them, or a capacity such as general partner that gives the adviser or a supervised person legal ownership or access; an adviser also has custody where a RELATED PERSON holds the assets in connection with its advisory services, which is how the ordinary separate-GP structure reaches the rule. A qualified custodian must maintain the assets, and the annual verification is met either by a surprise examination or, the route nearly all funds take, by the audit provision: annual GAAP financials audited under U.S. GAAS by a PCAOB-registered and inspected accountant, delivered to every beneficial owner within 120 days and on liquidation. The audit provision does NOT lift the qualified-custodian requirement.

Even passive income (interest, dividends, gains) becomes UBTI in proportion to leverage used to acquire the asset. A fund that borrows, including many subscription-line and portfolio-level structures, can create UBTI from otherwise exempt income.

An investor that fails to fund a capital call. LPAs impose severe (and enforceable) remedies: forfeiture of up to 50% of the interest, loss of voting rights, forced sale, and continued liability.

The default U.S. fund vehicle: partnership tax treatment, freedom of contract (including fiduciary-duty modification), a deep body of predictable law, and the Chancery courts. Formed quickly; the substantive terms are in the LPA.

Early termination of the fund by investor vote (typically 75%+ in interest, sometimes lower if cause exists); the most severe remedy behind removal and suspension rights.

A REIT less than 50% held (directly or indirectly) by foreign persons throughout the testing period. Stock of a domestically controlled REIT is not a USRPI, so foreign investors can exit FIRPTA-free by selling the stock.

The dispersion of returns below a stated threshold, typically the risk-free rate; the denominator of the Sortino ratio.

Cash actually returned ÷ capital paid in: 'realized' performance. The metric experienced investors rely on most, because unrealized value is not cash.

Committed but uncalled capital available to deploy. At the industry level, a gauge of competition for deals; at the fund level, remaining capacity to invest.

Income effectively connected with the conduct of a U.S. trade or business. Non-U.S. persons pay U.S. tax on ECI on a net basis at full graduated rates, and must file U.S. tax returns.

Later-closing investors fund their share of existing investments and expenses plus an equalization charge (interest-like, e.g., prime+2%) paid to the first-closing investors, putting all investors in the same economic position as if they had closed together.

An adviser relying on the venture capital adviser exemption or the private fund adviser exemption (<$150M U.S. private-fund RAUM): files an abbreviated Form ADV and is not subject to full registration. Still subject to anti-fraud rules and pay-to-play.

The federal regime governing U.S. private pension plans, imposing fiduciary duties and prohibiting self-dealing transactions. Funds care because managing 'plan assets' makes the manager an ERISA fiduciary.

A portion of GP carry distributions (e.g., 20–50%) held in escrow as security for the clawback, released as the fund de-risks.

Carry is paid only after investors have received ALL contributed capital (plus pref) back across the entire fund, not deal by deal.

Excuse rights let an investor opt out of a specific investment that would violate law or stated policy (common for ERISA, BHC, sovereign and religious-mandate investors); exclusion is the GP excluding an investor for legal/regulatory reasons. Both create per-investor capital account divergence.

Which costs the fund bears (deal expenses, broken-deal costs, fund-level legal, administration, litigation) versus the manager (its own overhead, salaries, rent). A perennial SEC examination priority and a frequent point of negotiation in disclosure.

Parallel U.S. and OECD regimes requiring funds (as financial institutions) to identify and report account holders; FATCA backs this with a 30% withholding sanction. The reason subscription documents demand W-8s/W-9s and self-certifications.

U.S.-source passive-type income (interest, dividends, rents, royalties) of non-U.S. persons that is not ECI. Taxed by 30% gross-basis withholding, reduced or eliminated by treaty or statutory exemptions (e.g., portfolio interest).

What the management fee is charged on: committed capital (the full pledged amount, even if undrawn), invested capital (cost of unrealized investments), NAV (open-end funds), or gross assets. The difference is material: 2% on committed is far more than 2% on invested in the early and late years.

Transaction, monitoring, directors', break-up and similar portfolio-level fees received by the manager are credited (offset) against the management fee, at 100% in today's market.

A vehicle whose only asset is its interest in another fund, existing to give a class of investors the appropriate tax and regulatory wrapper into the same portfolio.

An unregistered intermediary introducing investors for transaction-based compensation; a persistent area of regulatory uncertainty. Paying a finder who should have been a registered broker-dealer can create rescission risk for the offering.

Treats a non-U.S. person's gain on U.S. real property interests (including most U.S. real-estate-heavy corporations) as ECI, taxable on a net basis, with a 15% gross withholding on disposition under §1445.

The adviser's registration/reporting document: Part 1 (structured data on funds, AUM, conflicts) is public; Part 2 is the narrative brochure delivered to clients. ERAs file a subset of Part 1.

The notice filed with the SEC (and states) within 15 days of the first sale in a Reg D offering. Public, and often the first public indication that a manager is raising a fund.

Confidential systemic-risk reporting to the SEC for registered advisers with $150M+ private fund AUM; scope and frequency scale up for large hedge fund and large liquidity fund advisers.

An exception letting certain qualified organizations (mainly pensions and educational institutions) invest in leveraged real estate partnerships without debt-financed UBTI, but only if the partnership's allocations satisfy a rigid test for the entire life of the fund.

A vehicle or account for a single investor, with negotiated strategy, fees and liquidity. Large allocators increasingly use them for control and fee economics; managers weigh the operational load against the relationship.

An investor-facing vehicle formed to make one identified investment, or a small number of identified investments: a simplified fund. Because the investments are identified when investors commit, it is not a blind pool. Capital is fully applied to the deal at closing (no capital calls for new investments), and most closed-end fund mechanics do not apply: no investment period, no investment limitations, no recycling, and key person usually does not apply. Common in deal-by-deal sponsors, GP-led co-invest syndication and venture SPVs.

A cap on redemptions in any window: investor-level (each investor may redeem only X% of its holding per quarter) or fund-level (total redemptions capped at X% of NAV, pro-rated).

Public advertising or communications offering the securities: websites, conferences, press, mass email. Prohibited in 506(b); permitted in 506(c). Pre-existing substantive relationships are the traditional basis for offering without it.

A 10%-U.S. shareholder of a CFC includes the corporation's tested income currently. The §250 deduction, 40% for tax years beginning after 2025 (down from 50%), gives a U.S. C-corporation shareholder an effective rate of about 12.6% at the 21% corporate rate (formerly ~10.5%). The 2025 legislation renamed GILTI 'net CFC tested income' (NCTI) and repealed the QBAI tangible-return exclusion from 2026. Rates change; confirm the figure for the relevant year.

Lets a U.S. shareholder elect to exclude CFC tested income that bears foreign tax above 90% of the U.S. corporate rate (about 18.9% at a 21% rate). Elected annually on a tested-unit basis for the whole controlled group; often the simplest answer for a CFC operating in a meaningful-tax jurisdiction.

The fund's controlling partner, bearing (in theory) unlimited liability, so it is always a special-purpose entity (LLC or LP) formed for each fund. Receives the carried interest; the management company (IM) earns the management fee.

The GP's own capital invested in the fund alongside investors: 1–5% of total commitments (2% or more signals commitment; 'GP-friendly' management-fee waivers in lieu of cash are scrutinized).

The difference between a fund's gross annualized return and its net annualized return to investors: the total drag of management fees, fund expenses and the incentive allocation.

In hedge funds: incentive compensation is only charged on net new profits above the highest prior NAV (per investor), so investors do not pay twice for recovering losses.

The top holding entity that owns the operating subsidiaries of a portfolio investment. It carries no fund terms (governance flows from the fund or TopCo above); its functions are structural: locating acquisition debt and guarantees, isolating operating liabilities, providing lenders a single security package, and creating the tax-efficient entry point into the group. Larger capital structures stack HoldCo / MidCo / BidCo layers to tier debt.

In hedge or open-end funds: a benchmark (fixed % or index) NAV must exceed before incentive fees accrue. The open-end counterpart of the preferred return; 'hard' hurdles pay incentive only on the excess.

The trade association of institutional fund investors (pensions, sovereigns, endowments, insurers). ILPA publishes the market’s reference standards for fund terms and reporting: the ILPA Principles (alignment of interest, governance, transparency), a Model Limited Partnership Agreement, standardized reporting and fee-disclosure templates, and model conventions for specific terms, for example recycling limited to the cost of deals realized within 12 months.

The hedge fund manager's performance compensation, structured as an allocation of partnership profits to the general partner's capital account rather than a fee paid by the fund. Typically a percentage of net gains above the high-water mark, measured at crystallization.

The doctrine asking whether multiple offerings are in substance one (so that an exemption is tested across them together). Rule 152 now provides safe harbors, but parallel funds, co-invests and successor vehicles are still structured with integration in mind.

Clawback testing during the fund's life (e.g., after the investment period or on each distribution date) rather than waiting for liquidation, catching over-distributions while the GP still has assets.

The statute regulating mutual funds. Private funds are 'investment companies' by default and must fit an exclusion, almost always §3(c)(1) or §3(c)(7), to avoid a regime they could not practically operate under.

The years (typically 4–6 from final or first closing) during which the GP may call capital for new investments; afterwards, calls are limited to follow-ons, fees and obligations. Triggers the management fee step-down.

The discount rate equating capital calls and distributions over time; the headline private-funds return metric, sensitive to timing (early distributions and delayed calls flatter it).

The early-years dip in a closed-end fund's net returns (fees and expenses are drawn while investments are still at cost) followed by the rise as value is created and realized. Subscription lines and early markups flatten (or obscure) it.

The annual statement a partnership issues each partner showing their allocable share of income, deductions and credits; the document through which fund tax results reach investors.

If named principals cease devoting the required time to the fund, the investment period automatically suspends (and terminates absent a vote to restart, or restarts only on LP/LPAC approval with a replacement).

Executive officers and employees who participate in the fund's investment activities (for 12+ months) may invest without being QPs and without counting against the 100-owner limit; the route by which the investment team invests in its own funds.

The initial period an investor cannot redeem: 'hard' (no redemption at all) or 'soft' (redemption allowed with an early-withdrawal fee, e.g., 2–5%, usually paid to the fund).

The fund's constitution: economics, governance, fiduciary standards, transfer rules, dissolution. Every other document (PPM, side letters, subscription documents) is subordinate to it.

A committee of (usually 5–9) large investors that consents to conflicts of interest, valuation methodology and other LPA-specified matters. Members act in their own interest, expressly not as fiduciaries for other LPs.

The annual fee paying the manager's operating costs. Classically 2% (1.5–2% market, lower for large or credit funds) on committed capital during the investment period, stepping down to invested capital (or a lower rate) thereafter.

An arrangement where the GP waives management fees in exchange for a profits interest funding its GP commitment, converting ordinary fee income into capital gain and deferring tax. The IRS has proposed regulations attacking versions lacking entrepreneurial risk.

One master fund holds the portfolio; investors enter through feeders matched to their tax profile: a U.S. LP feeder for U.S. taxable investors, an offshore corporate feeder for non-U.S. and U.S. tax-exempt investors (blocking UBTI/ECI at the feeder).

The largest peak-to-trough decline in net asset value over a period, expressed as a percentage of the peak. It measures investment performance, a drop in the value of the portfolio; it is not investor redemptions, and investor redemptions are not modeled.

The right to elect side-letter provisions granted to other investors. Almost always tiered by commitment size (you may elect terms given to investors of your size or smaller) and excluding regulatory/tax accommodations specific to an investor's status.

A middle form between the European and American waterfalls. In its most common formulation, carry is paid as investments are realized, but only after investors have received back the capital of the REALIZED investments (with the fees and expenses allocated to them) plus the preferred return, rather than all contributed capital.

Total value (realized + unrealized) divided by invested capital: the multiple of capital returned; it is unaffected by timing but does not reflect how long capital was invested.

An analysis that runs the same fund model through thousands of simulated market paths and reports the distribution of outcomes (median, percentiles, probabilities) instead of a single number.

Assets minus liabilities, at fair value. In open-end funds it is the transaction price for subscriptions/redemptions and the fee base; in closed-end funds, the basis of interim reporting and RVPI.

Borrowing secured by the fund's portfolio value (rather than uncalled commitments), used late in a fund's life for follow-ons, liquidity or, controversially, to fund distributions.

No fixed term: investors subscribe and redeem at NAV periodically; capital is fully funded at subscription. Economics run through NAV-based fees and incentive allocations with high-water marks, and liquidity is managed through gates, lock-ups and notice periods.

A QOF (a corporation or partnership investing ≥90% in qualified opportunity-zone business property) lets investors defer eligible capital gains reinvested within 180 days and, after a 10-year hold, step the QOF interest up to fair market value so post-acquisition appreciation escapes tax.

The costs of organizing and launching the fund, including forming the entities, preparing the fund and offering documents, negotiating fund terms, side letters and closings with investors (legal, accounting, filing), and the marketing of the offering itself, including travel, meals and lodging for management roadshows and investor meetings, which are not legal fees but are customarily borne by the fund as organizational expenses. Costs of the sponsor’s own house are not organizational expenses of the fund: forming the management company, its adviser registration and compliance program, and developing the carried interest program are customarily paid by the manager, and practice varies on the basic formation of the general partner. Fund organizational expenses are borne by the fund up to a negotiated cap, with the excess borne by the manager, typically via a management fee offset. Caps scale with fund size.

A companion fund investing side by side with the main fund in fixed proportions, on substantially identical terms; formed for investors needing a different jurisdiction or tax treatment (e.g., an offshore parallel for non-U.S. investors rather than a feeder).

Entity types listed in the regulations that are always corporations for U.S. tax purposes and cannot check the box (e.g., a U.S. Inc., a UK plc, an SA). Choosing a non-per-se vehicle preserves classification flexibility.

A foreign corporation that is mostly passive (75% income / 50% assets tests). U.S. taxable investors in a PFIC face a punitive interest-charge regime on 'excess distributions' and gains, unless they elect QEF or mark-to-market treatment.

Taxable income allocated to investors without matching cash distributions; common with accrued (PIK) interest, reinvested gains, or §1446 withholding situations.

A registered broker-dealer engaged to raise capital for the fund, compensated by a percentage of commitments raised. LPAs typically offset 100% of placement fees against the management fee so that investors do not bear them economically.

A fund's assets become 'plan assets' if benefit plan investors hold 25% or more of any class of equity (excluding the GP's and affiliates' interests), unless the fund qualifies as a VCOC or REOC. Tested at every closing and on transfers and withdrawals.

Exempts most U.S.-source interest on registered-form debt from the 30% withholding tax for non-U.S. lenders. Unavailable to 10% equity holders, banks on ordinary loans, and contingent interest.

The fund's disclosure document: strategy, terms, risk factors, conflicts, tax and regulatory discussion. Not reviewed by any regulator; its discipline comes from Rule 10b-5 antifraud liability.

The return (8% compounded annually is the PE standard) investors must receive on contributed capital before the GP shares in profits. Credit and real estate funds often run 6–8%; some VC funds have none.

Per se bans on transactions between a plan (or plan-asset fund) and 'parties in interest': sales, loans, services, self-dealing, regardless of fairness, subject to statutory and administrative exemptions (e.g., the QPAM exemption).

An elective state tax under which a partnership pays the state income tax at the entity level and deducts it federally. The election can mitigate the federal limitation on individual deductions for state and local taxes. Available in most income-tax states, but not all (e.g., not Pennsylvania or Delaware).

An election letting a U.S. investor in a PFIC include its share of the PFIC's earnings annually (preserving capital-gain character for net capital gain) instead of the punitive default regime, but only if the PFIC provides the necessary annual information statement.

Foreign pension funds that are qualified holders under the §897(l) rules are exempt from FIRPTA on U.S. real property gains attributable to qualified segregated accounts; a major carve-out that reshaped foreign pension investment in U.S. real estate.

An exclusion of gain on the sale of qualifying C-corporation stock held by a non-corporate holder. For stock issued after July 4, 2025, a tiered 50% / 75% / 100% exclusion applies at 3 / 4 / 5-year holding periods, with a per-issuer cap of the greater of $15M (indexed) or 10x basis and a $75M gross-asset ceiling at issuance. §1045 lets a holder roll gain on QSBS held more than six months into replacement QSBS.

The standard an investor must meet for a registered adviser to charge it performance-based compensation (carry/incentive fees): currently $1.4M+ under management with the adviser or $2.7M+ net worth (set by the SEC's inflation-adjustment order effective June 29, 2026; adjusted about every five years). QPs and knowledgeable employees qualify automatically.

Generally: individuals with $5M+ in investments; entities with $25M+ in investments; certain family companies and trusts. The eligibility gate for 3(c)(7) funds.

The starting number for the simulation's random-number generator. The generator is deterministic: the same seed with the same assumptions produces the identical set of simulated markets every time.

The SEC's standardized asset measure that drives the adviser-registration thresholds: the $150M private fund adviser exemption, and the $100M / $110M SEC-registration line. It is computed GROSS: fund-level debt and other liabilities are not subtracted, and for a private fund uncalled capital commitments are INCLUDED, plus any proprietary, non-fee-paying or non-U.S.-client assets the adviser manages continuously and regularly. Measured at current market or fair value within 90 days of the filing.

The GP's right to reinvest (rather than distribute) certain proceeds, typically capital returned within 12–18 months or up to invested-cost limits, so the fund can deploy approximately 100% of commitments despite fees and expenses consuming part.

The open-end liquidity package: frequency (monthly/quarterly), notice period (30–90 days), payment timing, holdbacks pending audit, and the GP's suspension powers. Collectively, the real liquidity an investor has.

The safe harbor under which virtually all U.S. private funds offer their interests without SEC registration; in practice Rule 506(b) or 506(c), with a Form D filed within 15 days of first sale.

Safe harbor for offers and sales made outside the U.S. to non-U.S. persons; routinely paired with Reg D so a fund can raise globally in one offering.

A corporation that, by meeting income, asset, distribution (90%) and ownership tests, deducts dividends paid, leaving effectively one level of tax. Must have at least 100 shareholders (hence the ~125-holder 'accommodation preferred' placements) and not be closely held.

For-cause removal (fraud, willful misconduct, material breach, often requiring a final adjudication) typically needs a majority-in-interest; no-fault removal needs a supermajority (75–80%) and usually leaves the GP with accrued carry and a tail of reduced carry on existing investments.

The real estate analog to VCOC: 50%+ of assets in real estate that is managed or developed, with the entity having the right to participate substantially in management/development. The standard plan-asset route for real estate funds that cannot remain under 25%.

The information package: annual audited financials (custody rule timing), unaudited quarterlies, capital account statements, K-1s, and increasingly the ILPA reporting and fee templates.

An adviser registered with the SEC, generally required once a private fund manager has $150M+ in private-fund RAUM (or $100M+ RAUM generally). Registration brings Form ADV, the custody rule, compliance programs, the marketing rule, books-and-records and examinations.

Remaining NAV ÷ paid-in capital: the unrealized component of TVPI (TVPI = DPI + RVPI).

A structure for non-U.S. credit investors: a U.S.-taxed affiliate originates loans (origination is a USTB), holds ('seasons') them for a period, then sells them to the offshore fund, which merely buys seasoned debt and so avoids ECI. Requires that the form be respected in substance: independent decision-making, market terms, no pre-arranged commitment.

A risk-adjusted return measure: the portfolio's return in excess of the risk-free rate, divided by the volatility of returns. Higher is better; a ratio near 1 over a full cycle is strong for most strategies.

A bilateral agreement giving a specific investor terms beyond the LPA: fee discounts, co-investment rights, excuse rights, reporting, regulatory accommodations (ERISA, §892, public-records laws).

A segregated class holding illiquid positions in an otherwise liquid fund: incoming investors do not share in them, redeeming investors wait for realization, and incentive fees are charged only on realization.

A variant of the Sharpe ratio that divides excess return by DOWNSIDE deviation only, the dispersion of returns below the risk-free rate, rather than total volatility.

A limited partner entitled to the carried interest allocation rather than a pro-rata capital return: a sponsor-side vehicle, commonly a separate entity from the general partner, through which the principals receive the carry. Separating the carry from the general partner keeps the economics apart from management authority and unlimited-partner exposure, and gives the carry program its own vehicle for vesting, transfers and estate planning.

A single-purpose entity below the fund: holding companies for deals, leverage isolation, jurisdiction access. In its standard form it is a subsidiary splitter or aggregator (it allocates ownership among vehicles and holds sub-entities) and is not investor-facing, so it carries no fund terms. Fund structures stack SPVs for liability, tax and financing reasons.

The liability floor below which the GP is not exculpated or indemnified. Market is gross negligence, fraud, willful misconduct and material breach; ILPA pushes for ordinary negligence and express non-waiver of fiduciary duties (Delaware law allows substantial waiver in an LPA).

The reduction in management fee after the investment period (or on a successor fund's first closing): switch the base to invested capital, lower the rate, or both.

Specified categories of a CFC's income (passive 'foreign personal holding company' income, plus certain related-party sales and services) that 10%-U.S. shareholders must include currently, whether or not distributed; the predecessor regime to NCTI.

The investor's contract to purchase interests, bundled with the investor questionnaire establishing eligibility (accredited/QP status, ERISA, FATCA, AML/KYC); the closing mechanics of the fund.

A fund credit line secured by the right to call investor capital, used to bridge capital calls and smooth funding. Because IRR clocks start at the (delayed) capital call, sustained use mechanically inflates reported IRR.

The GP may not raise a competing fund until the current fund is substantially invested (e.g., 70–75% of commitments invested, committed or reserved), protecting investors' claim on the team's attention.

A halt of the investment period (no new deals; often reduced fees) triggered by key-person events or cause determinations. Reversible by vote, unlike termination.

LPA provisions requiring (or permitting) the fund to distribute enough cash for partners to pay tax on allocated income, usually computed at an assumed rate; advances against future distributions.

Short-term instruments in which the fund holds cash it is not yet using: money-market funds, Treasury bills, commercial paper and similar cash equivalents, held pending investment, pending distribution, or as reserves. The LPA's investment restrictions ordinarily except them from the fund's strategy limits.

The fund's life: typically 10 years plus two or three one-year extensions, each requiring GP discretion plus LPAC or investor consent (the negotiated point). Funds outliving extensions go into wind-down or seek continuation vehicles.

The entity at the top of a deal where multiple vehicles come together to make one investment: the main fund alongside a co-investment fund, other sponsors or direct co-investors. Each participant holds its stake in the TopCo, and the deal's governance lives in a shareholders or JV agreement at this level: board composition, reserved matters and vetoes, transfer restrictions (ROFR/ROFO, tag and drag rights) and exit mechanics.

LP interests are transferable only with GP consent (typically 'not unreasonably withheld' is the negotiated ask), conditioned on securities-law, tax (publicly traded partnership, §1446(f)) and ERISA compliance.

Bilateral treaties reduce U.S. withholding on dividends/interest and can shield business profits absent a permanent establishment, but only for residents satisfying the treaty's LOB article, which polices treaty-shopping through intermediate holding companies.

(Distributions + remaining NAV) ÷ capital paid in. The fund-level multiple including unrealized value; only as good as the valuations behind the NAV.

The tax actually imposed on UBTI, at regular corporate (or trust) rates. UBTI is the income; UBIT is the tax bill.

Income a U.S. tax-exempt investor (pension, endowment, foundation, IRA) earns from an active trade or business unrelated to its exempt purpose, or from debt-financed investments, that is taxable even though the investor is otherwise exempt.

A U.S. corporation 50% or more of whose asset value, on the §897(c)(2) base of USRPIs, non-U.S. real property and trade-or-business assets, is U.S. real property interests. A USRPHC's STOCK is itself a USRPI, so a non-U.S. person's sale of the stock is a FIRPTA disposition.

The threshold concept for ECI: regular, continuous and considerable business activity in the U.S. Loan origination, development activity and operating businesses generally are a USTB; trading securities for one's own account generally is not (the §864(b)(2) trading safe harbors).

A plan-asset exception: an entity with 50%+ of assets in operating companies in which it has direct contractual management rights, obtained at the time of investment, with the first investment qualifying and an annual valuation-period test thereafter.

The year a fund begins investing (or holds first/final close; conventions vary). Performance is benchmarked within a vintage, since macro timing dominates absolute returns.

The annualized standard deviation of periodic returns: a measure of how widely results scatter around their average, not the worst-to-best range for a year. As a general approximation, roughly two thirds of annual outcomes fall within one standard deviation of the expected return, and about ninety-five percent within two. A fund with a 9% expected return and 15% volatility would see most years fall between roughly -6% and +24%.

IRS certification forms collected in subscription documents: W-9 for U.S. persons; the W-8 family (W-8BEN, BEN-E, IMY, ECI, EXP) for non-U.S. persons, establishing withholding status, treaty claims and FATCA classification.

The ordered tiers through which distributions flow: return of capital, then preferred return, then GP catch-up, then the carry split (e.g., 80/20). The defining economic mechanic of a closed-end fund.