Fund Fundamentals
The formal request from a private fund asking investors to fund a portion of their committed capital.
What is a capital call?
This type of private fund primarily acquires ownership interests in privately held companies.
What is a private equity fund?
This abbreviation represents a fund's total assets minus its total liabilities.
What is NAV?
Under U.S. GAAP investment-company accounting, investments are generally reported using this measurement basis.
What is fair value?
The portion of an investor's committed capital to a private fund that has not yet been contributed.
What is an unfunded commitment?
Explain what a capital commitment is in a private fund.
The amount of capital an investor agrees to provide to the fund.
Explain what distinguishes a fund of funds from a traditional investment fund.
It invests primarily in other investment funds rather than directly in underlying portfolio investments.
Management Fee: Explain what this fee is in the context of an investment fund.
A recurring fee paid to the investment manager for managing the fund and its investments.
Explain the primary purpose of a Schedule of Investments.
To present the fund's investment holdings and related investment information, including fair value.
Write-Down: Explain what this means for an investment.
A reduction in the recorded value of an investment.
In a private fund, this investor provides capital but generally does not participate in the fund's day-to-day management or investment decisions.
Who is a Limited Partner (LP)?
This public investment fund trades on a stock exchange throughout the day, allowing its market price to differ from its NAV.
What is an ETF?
Explain what carried interest is in a private fund.
The GP's or manager's share of the fund's investment profits, subject to the fund's governing terms.
Under ASC 820, an investment is valued using an unadjusted quoted price for the identical investment in an active market. What fair value hierarchy classification applies?
What is Level 1 security?
This performance metric accounts for both the amount and timing of investment cash flows and is expressed as an annualized percentage.
What is IRR?
A private fund has completed its investment period and is now primarily managing existing investments, selling investments, and returning capital to investors. This stage of the fund's life is commonly called this.
What is the harvest/ realization period?
This public investment fund pools investor capital and generally allows investors to purchase or redeem shares directly from the fund at NAV.
What is a mutual fund?
A private fund distributes carried interest to the GP early in its life. At liquidation, the GP is determined to have received more carried interest than permitted under the fund agreement. This provision may require the GP to return the excess amount.
What is a clawback?
A public investment fund has $525 million of total assets, $25 million of liabilities, and 20 million shares outstanding. What is its NAV per share?
What is $25.00?
Co-Investment: Explain what this means in private markets.
An investment made alongside a fund directly into the same portfolio company or asset.
This provision allows a fund to temporarily borrow money rather than immediately calling capital from investors, often to bridge the timing between an investment and the related capital call.
What is a subscription line / subscription credit facility?
This type of investment vehicle primarily owns, operates, or finances income-producing real estate and generally must distribute at least 90% of its taxable income to shareholders to maintain its tax status.
What is a REIT (Real Estate Investment Trust)?
A private fund requires investors to receive an 8% minimum return before the GP becomes entitled to carried interest. The 8% threshold is called this.
What is the preferred return (hurdle rate)?
Explain the purpose of ASC 946.
It provides specialized U.S. GAAP accounting and reporting guidance for entities that qualify as investment companies.
Side Letter: Explain what this means in a private fund.
An agreement between a fund and a specific investor that provides terms or rights that supplement or modify the terms of the main fund agreement for that investor.