Private Markets Cert flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Committed capital

The total amount an LP contractually pledges to a private fund; it is drawn over time via capital calls and forms the basis for management fees during the investment period.

Capital call

A GP notice requiring LPs to fund a portion of their commitment, typically with about ten business days' notice, used to pay investments, fees, and expenses.

Carried interest

The GP's share of fund profits, commonly 20%, paid only after LPs receive return of capital and a preferred return, often subject to a clawback.

Preferred return (hurdle)

A minimum annual return, commonly 8%, owed to LPs before the GP receives any carried interest; it compensates LPs for the time value of early capital deployment.

GP catch-up

A waterfall provision letting the GP receive a disproportionate share of profits after the preferred return until it holds its full carry percentage of total profits.

European waterfall

A whole-fund waterfall where all capital and preferred return are returned to LPs across the entire fund before any carried interest is paid to the GP.

American waterfall

A deal-by-deal waterfall paying carry on each realized investment; it accelerates GP compensation and requires clawback provisions to protect LPs.

Clawback

An obligation requiring the GP to return excess carried interest if later losses reduce total fund profits below the level on which carry was paid.

TVPI

Total value to paid-in capital: (fund NAV plus cumulative distributions) divided by paid-in capital; it measures total value created but ignores timing.

DPI

Distributions to paid-in capital: cumulative distributions divided by paid-in capital; it measures realized cash returned to LPs and ignores unrealized value.

RVPI

Residual value to paid-in capital: current fund NAV divided by paid-in capital; it captures unrealized value still held in the portfolio.

J-curve

The pattern of negative early private fund returns from fees and initial write-downs, followed by gains as portfolio companies mature and are realized.

Vintage year

The year a fund makes its first capital call; it groups funds by market entry conditions and is the standard basis for benchmarking private returns.

PME (public market equivalent)

A method comparing private fund cash flows against a public index by investing and withdrawing index dollars on the same dates as the fund.

Denominator effect

When public holdings fall faster than private marks, private assets become an oversized share of the portfolio, forcing rebalancing and reduced new commitments.

Unfunded commitment

The portion of an LP's pledge not yet called; it is a contingent liability that must be reserved for and included in liquidity planning.

Subscription credit line

A short-term fund-level facility repaid by LP capital calls; it delays drawdowns and can artificially raise reported IRR by shortening capital exposure.

Blind pool

A fund structure where LPs commit capital before specific investments are identified, relying on the GP's stated strategy and discipline.

Key person clause

A fund term suspending the investment period or allowing LP remedies if specified individuals cease to devote substantial time to the fund.

LPAC

The limited partner advisory committee, an LP body that reviews conflicts of interest, valuations, and GP-led transactions but generally lacks investment veto power.

Side letter

A negotiated agreement granting a specific LP special terms such as fee discounts, reporting, or co-investment rights; most-favored-nation clauses extend similar terms to others.

Co-investment

A direct investment alongside the fund, often with reduced or no carry and fees, giving LPs concentration control but requiring independent underwriting capacity.

Continuation vehicle

A GP-led structure buying assets from an expiring fund and holding them in a new vehicle; conflicts require LPAC review, fairness opinions, and LP election rights.

Secondaries

Purchases of existing LP fund interests or direct assets, typically at a discount to NAV, offering faster deployment and reduced J-curve exposure.

Leveraged buyout

Acquisition of a company using substantial debt secured by the target's cash flows, with equity returns driven by EBITDA growth, deleveraging, and multiple expansion.

Venture power law

The return pattern where a small number of portfolio companies generate most fund returns, making ownership in winners the dominant driver of outcomes.

Cap rate

Net operating income divided by property value; it measures unlevered real estate yield and rises when values fall or income risk increases.

Direct lending

Private credit provided bilaterally by non-bank lenders, typically senior secured, floating-rate, and covenant-based, with limited secondary liquidity.

PIK interest

Payment-in-kind interest is accrued and added to the loan principal instead of being paid in cash, deferring cash flow and raising credit risk.

IPEV valuation guidelines

Industry guidance requiring private investments be reported at fair value, with calibration to transaction prices and disclosure of valuation techniques and inputs.

Qualified purchaser

A US investor owning at least $5 million in investments, required for Section 3(c)(7) funds that may hold unlimited qualified purchasers.

Commitment pacing

A modeling process setting annual commitment amounts so drawdowns, distributions, and NAV together maintain the target private markets allocation over time.