| Alternative investment | Any investment outside of traditional long-only positions in publicly traded stocks, bonds, and cash; includes private capital, real assets, hedge funds, and digital assets |
| Private capital | Umbrella term for private equity and private debt investments in non-publicly traded companies |
| Private equity (PE) | Equity investments in private companies, including venture capital, growth equity, and leveraged buyouts |
| Private debt | Non-bank lending to private companies; includes direct lending, mezzanine, venture debt, and distressed debt |
| Real assets | Tangible physical assets such as real estate, infrastructure, natural resources, farmland, and timberland |
| Real estate | Land and permanent structures; investment through direct ownership or indirect vehicles (REITs, funds) |
| Infrastructure | Long-lived physical assets providing essential services (transportation, utilities, communications, social facilities) |
| Hedge fund | A pooled investment vehicle employing diverse strategies, leverage, and short selling; fewer regulatory constraints than mutual funds |
| Natural resources | Physical commodities and resource-producing assets including farmland, timberland, and commodity investments |
| Fund investing | Investing through a pooled fund managed by a GP; provides diversification and professional management at the cost of higher fees |
| Direct investing | Investing directly in assets or companies without an intermediary fund; requires more capital and expertise but avoids fund-level fees |
| Co-investing | Investing alongside a GP in specific deals; moderate fees and control; often offered to large LPs as an incentive |
| General Partner (GP) | The manager of a private fund; responsible for investment decisions, operations, and earning management/performance fees |
| Limited Partner (LP) | An investor in a private fund who provides capital but has limited liability and no active management role |
| Limited Partnership Agreement (LPA) | The legal contract governing the relationship between GP and LPs, specifying fees, distribution waterfall, reporting, and other terms |
| Management fee | An annual fee (typically 1.5%—2%) charged by the GP to cover fund operating expenses; calculated on committed capital or AUM |
| Performance fee (carried interest) | The GP’s share of fund profits (typically 20%) earned above a specified hurdle rate; also called “carry” |
| Hurdle rate (preferred return) | The minimum return the fund must achieve before the GP earns performance fees; typically 6%—8% annually |
| High-water mark | The highest prior NAV level; the GP earns performance fees only on gains exceeding this mark, preventing fees on recovered losses |
| Clawback provision | A contractual requirement for the GP to return excess performance fees if later fund performance is poor, ensuring total carry does not exceed the agreed percentage |
| Catch-up clause | After the hurdle rate is met, the GP receives a larger share of incremental profits until their carry “catches up” to the target percentage of total profits |
| Distribution waterfall | The defined order in which fund profits are distributed between GP and LPs; can be deal-by-deal (American) or whole-of-fund (European) |