AAllocator DeskDiligence Memory

Glossary

The LP vocabulary, defined.

A working reference for the terms institutional allocators use every day.

Fund Structure

  • Carried Interest

    The GP's share of fund profits, typically 20%, paid after LPs receive their capital and a preferred return.

  • Clawback

    A contractual obligation requiring the GP to return previously distributed carried interest if final fund performance falls short of the agreed split.

  • Distribution Waterfall

    The contractual sequence by which fund proceeds are split between LPs and the GP.

  • Fund of One / Separately Managed Account (SMA)

    A bespoke fund vehicle managed for a single LP, with customized economics, governance, and investment scope.

  • Fund Term and Extensions

    The contractual life of the fund (typically 10 years) plus a defined number of extension years, usually requiring LPAC or LP consent.

  • GP Catch-Up

    A waterfall mechanism that accelerates distributions to the GP after LPs receive their preferred return, until the agreed profit split is reached.

  • GP Commitment

    The capital the GP itself commits to the fund alongside LPs, expressed as a percentage of total fund size.

  • Investment Period

    The window during which a fund may make new platform investments, typically four to six years.

  • Management Fee

    The annual fee paid by LPs to the GP to cover the cost of operating the fund, typically 1.5-2% of commitments during the investment period.

  • NAV Facility

    Fund-level debt secured against the net asset value of the underlying portfolio, used to fund distributions, follow-ons, or new investments late in fund life.

  • Preferred Return (Hurdle)

    The minimum annual return LPs must receive before the GP earns carried interest, typically 8%.

  • Recycling Provision

    An LPA clause permitting the GP to re-invest early distributions or expenses back into new investments, effectively increasing deployable capital beyond committed capital.

  • Subscription Line of Credit

    A revolving credit facility secured by LP capital commitments that GPs use to delay or smooth capital calls.

Performance

  • Benchmarking

    Comparing fund performance to relevant peers (typically same vintage and strategy) and to public market equivalents.

  • Distributions to Paid-In (DPI)

    Cumulative distributions divided by paid-in capital - the realized portion of the return.

  • Internal Rate of Return (IRR)

    The annualized rate of return that sets the net present value of a fund's cash flows to zero.

  • J-Curve

    The early-life pattern in which a private fund's returns dip below zero as fees and write-downs precede gains.

  • Multiple on Invested Capital (MOIC)

    Total value (realized plus unrealized) divided by capital invested, expressed as a multiple.

  • Net vs. Gross Returns

    Gross returns measure performance at the deal level before fund-level fees, expenses, and carry; net returns are what LPs actually receive.

  • Public Market Equivalent (PME)

    An analytical method that tests whether a private fund's cash flows would have outperformed the same cash flows invested in a public market index.

  • Realized vs. Unrealized Value

    Realized value is cash distributed to LPs; unrealized value is the GP's mark on positions still held in the fund.

  • Residual Value to Paid-In (RVPI)

    Remaining unrealized NAV divided by paid-in capital - the portion of the return still on paper.

  • Total Value to Paid-In (TVPI)

    Sum of distributions and remaining NAV, divided by capital paid in.

  • TWR vs. IRR

    Time-weighted return (TWR) measures manager skill independent of cash flow timing; IRR is dollar-weighted and reflects the actual investor experience.

  • Vintage Year

    The year in which a fund makes its first investment (or the year of final close, depending on convention).

Operations

  • Capital Call

    A formal request from a GP to LPs to fund a portion of their committed capital.

  • Co-Investment

    Direct LP investment alongside a GP into a specific deal, usually fee-free or with reduced economics.

  • Denominator Effect

    When public market declines push private market exposure above target, even without new private investment.

  • Distribution Notice

    A formal notice from a GP that capital is being returned to LPs, typically with detail on source and tax character.

  • Fund Administrator

    The third-party service provider that handles capital calls, distributions, NAV calculation, and investor reporting on behalf of a GP.

  • Obligations Registry

    A centralized record of every contractual obligation - reporting deliverables, side-letter rights, key-person notifications, MFN windows - mapped to triggers, owners, and evidence.

  • Pacing Model

    A planning model that projects future capital calls, distributions, and commitments needed to maintain a target private markets allocation.

  • Recyclable Distribution

    A distribution that the GP may call back within a defined window, typically to fund follow-on investments.

  • Service Providers

    The auditor, administrator, legal counsel, custodian, and tax advisor used by a fund.

  • Unfunded Commitment

    The portion of an LP's total commitment that has not yet been called by the GP.

Governance

  • Audit Trail

    An immutable, time-stamped record of who decided what, when, and on the basis of which evidence.

  • GP Removal

    The contractual right of LPs to replace the general partner, typically either 'for cause' (lower vote threshold) or 'no fault' (higher threshold).

  • ILPA (Institutional Limited Partners Association)

    A global association representing institutional LPs that publishes standards, templates, and reporting guidance.

  • Key-Person Provision

    An LPA clause that suspends the investment period if named senior individuals leave the GP.

  • Limited Partner Advisory Committee (LPAC)

    A committee of LP representatives that advises the GP on conflicts, valuations, and major fund decisions.

  • Limited Partnership Agreement (LPA)

    The constitutional document of a private fund that defines economics, governance, and operational rules.

  • Most Favored Nation (MFN) Election

    A side-letter right allowing an LP to elect into more favorable terms granted to other LPs in the same fund.

  • Side Letter

    A bilateral agreement between an LP and the GP that grants rights and protections beyond the LPA.

Secondaries

  • Continuation Vehicle (CV)

    A new fund vehicle created to acquire one or more assets from an existing fund, allowing the GP to continue managing them with fresh capital and a new term.

  • Fairness Opinion

    An independent third-party assessment that a transaction price is within a reasonable range of fair value.

  • GP-Led Secondary

    A liquidity transaction initiated by the GP, typically using a continuation vehicle to hold one or more existing portfolio assets beyond the original fund's life.

  • LP-Led Secondary

    A transaction in which an LP sells one or more fund interests to another investor on the secondary market.

  • Secondary Market

    The market for trading existing private fund interests and GP-led continuation vehicles.

Diligence

  • Decision Journal

    A structured record of the rationale, conviction level, dissenting views, and signal snapshot at the moment a decision was made.

  • Due Diligence (DD)

    The structured investigation an LP conducts before committing capital to a fund or co-investment.

  • IC Memo

    The written investment recommendation that anchors an IC discussion and becomes the permanent record of the decision.

  • Institutional Memory

    The persistent record of why decisions were made, what was discussed, and what was learned - independent of any individual on the team.

  • Investment Committee (IC)

    The body that approves new commitments and material decisions on behalf of an institutional LP.

  • Operational Due Diligence (ODD)

    The workstream that evaluates a GP's non-investment operations: valuations, controls, service providers, technology, cyber, BCP, and key-person risk.

  • Reference Call

    A structured conversation with a third party - typically a former portfolio company CEO or a co-investing LP - to validate or challenge a GP's narrative.

Reporting

  • Capital Account Statement

    The LP-specific accounting statement showing contributions, distributions, allocations, and ending balance for the period.

  • Quarterly Letter

    The GP's quarterly written report to LPs covering performance, portfolio activity, and material events.

  • Schedule K-1

    The annual US tax form that allocates a partnership's income, deductions, and credits to each partner.

Strategies

  • Buyout

    A private equity strategy of acquiring controlling stakes in mature, cash-generative companies, typically using a meaningful component of debt financing.

  • Private Credit

    Non-bank lending to private companies, spanning direct lending, mezzanine, distressed, and specialty finance strategies.

  • Venture Capital

    A private equity strategy of taking minority equity positions in early- and growth-stage companies, with returns driven by a small number of outsized winners.

LP Types

  • Endowment

    A perpetual pool of capital supporting a non-profit institution (typically a university or foundation), characterized by long horizons and high private markets allocations.