Glossary

Bridge Finance

Financing at the fund level secured on LP commitments and intended for the purpose of temporarily financing investments or expenses of the fund in advance of Capital Calls from LPs.

Buyout investment

Financing provided to acquire a company. It may use a significant amount of borrowed capital to meet the cost of acquisition. Typically, by purchasing majority or controlling stakes.

Capital Call

Funds drawn down into the fund by the manager from investors. Both the amount and the timing of the notice of any Capital Call must be in accordance with the fund formation documents.

Carried interest

A share of the gains of the fund which accrue to the GP/Manager. The calculation of carried interest is set out in the fund formation documents.

Cash-adjusted or roll-forward valuation

The latest available NAV as shown in the capital account from the underlying fund’s manager plus Capital Calls less distributions from the underlying fund to the fund of funds between the last available NAV date and reporting date, assuming the reporting date is later.

Commitment/Committed capital

An investor’s contractual commitment to provide capital to a fund up to the amount subscribed by the investor and recorded in the fund documents.

CSRD

Corporate Sustainability Reporting Directive. On 21 April 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), amending the reporting requirements of the Non-Financial Reporting Directive (NFRD). The CSRD entered into force on 5 January 2023.

Distribution

Payment of any amount in cash or the value of any distribution in-specie by the fund to the investor, excluding amounts returned in relation to temporary, bridging or aborted investments and net of any distributed amounts which have subsequently been clawed back, e.g., for warranty claims.

Distributions to paid-in capital (DPI)

This is the ratio of the cumulative distributions to LPs to paid-in capital.

Environmental, Social and Governance (“ESG”)

ESG stands for the environmental, social and governance factors that can impact (the performance of) a portfolio company and/or an investment, including the GP itself. It is a phrase commonly used alongside responsible investment.

Final closing

Date on which the fund admits its last LP and closes to any further subscriptions of interest from LPs.

First closing

Date on which the first LPs are admitted into a fund.

Fund

Fund or private equity fund is the generic term used in these Guidelines to refer to any designated pool of investment capital targeted at any stage of private equity investment from start-up to large buyout, including those held by corporate entities, limited partnerships and other investment vehicles, established with the intent to exit these investments within a certain time frame.

Funded commitment to commitment (FCC)

This is the ratio of committed capital less unfunded commitment to committed capital.

Fund formation documents

The entire set of legal documents, including the Limited Partnership Agreement (LPA) or equivalent legally binding document and side letters agreed by the investors and the fund manager. Matters covered in the legal documentation include the establishment of the fund, management, and winding up of the fund and the economic terms agreed between the investors and the fund manager.

Fund Leverage

Borrowings over and above the amount of LP commitments which is intended to increase the investment capacity of the fund beyond the level of aggregate LP commitments and which is intended to be permanent in nature.

General Partner/GP/Manager

The person or entity with the responsibilities and obligations for the management of the fund, as set out in the fund formation documents.

Growth investment

A type of private equity investment (often a minority investment) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of the business.

Investor/Limited Partner/LP

Person or entity holding an investment interest (as distinct from a management interest) in a private equity fund.

Later-stage financing

Financing provided for an operating company, which may or may not be profitable. Late-stage venture tends to be financing into companies already backed by VCs. Typically, in C or D rounds.

LPA or Limited Partnership Agreement

A legally binding document setting out the operating rules for a fund together with the rights and responsibilities of the parties subscribing to it; see Fund formation documents.

LPAC

The LPAC is the Advisory Committee comprising a cross-section of representative investors of the fund. The role of the LPAC is essentially to be consulted by the GP on material matters affecting the fund and on conflicts of interest. More generally, it acts as a sounding board for the GP.

NDA

Non-disclosure agreement governing disclosure of information either generally or to specified parties. 

NAV

Net asset value of the fund arrived at after taking all assets and deducting all liabilities and provisions.

Total original cost

Total capital invested including follow-on investments but excluding rolled up income and temporary or bridge financing.

Paid-in capital

Cumulative payments that have been called by the manager in accordance with the fund formation documents, net of commitments drawn and returned in relation to temporary, bridging or aborted investments and excluding any amounts clawed back, e.g., to fund warranty claims. For the avoidance of doubt, paid-in capital may be composed both of amounts funded from original commitments and those amounts which have been recalled from previous distributions. Consequently, paid-in capital can exceed commitment.

Paid-in capital to commitment (PiCC)

This is the ratio of paid-in capital to committed capital.

Recallable distributions

A recallable distribution is an amount distributed to investors that may be recalled subsequently in accordance with the fund formation documents, e.g., in relation to management fees funded in the early years of a fund from Capital Calls.

The determination of whether an amount is a return of a temporary investment or investment proceeds distributed and subject to recall or recycling will be set out in the fund formation documents.

Replacement capital investment

Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.

Rescue/Turnaround investment

Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing prosperity.

Residual value

This is the remaining undistributed net asset value of the fund after carried interest has been allocated.

Residual value to paid-in capital (RVPI)

This is the ratio of the residual value attributable to LPs (net of carried interest) to paid-in capital.

Responsible investment

Responsible investment involves an investment approach that integrates ESG factors into corporate conduct, investment decisions and ownership activities. A responsible investor will commonly be interested in the ESG conduct, impact or performance of a portfolio company it invests in, and in case of an LP, this may also include ESG aspects related to the GP.

Seed investment

Funding provided before the investee company has started mass production/distribution with the aim to complete research, product definition or product design, also including market tests and creating prototypes. This funding will not be used to start mass production/distribution.

Start-up investment

Funding provided to companies, once the product or service is fully developed, to start mass production/distribution and to cover initial marketing. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet. The destination of the capital would be mostly to cover capital expenditures and initial working capital.

TCFD

The Financial Stability Board (FSB) created the TCFD (Task Force on Climate-related Financial Disclosures) to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing a specific set of risks related to climate change.

Total Expense Ratio (TER)

The Total Expense Ratio (TER) is a measure to correlate certain fund expenses to other metrics of the fund (most commonly NAV or commitments). TER is a concept that was originally developed for listed mutual funds so it has some limitation when applied to closed-ended Private Market funds (e.g., the TER for Private Market funds can be negative or undefined in certain situations).

There exist different national regulatory standards on calculating TER for a Private Market fund, especially which expenses should and should not be included in the numerator and what fund metric could or should be used as denominator. The TER of an individual fund investment can be calculated by the LPs by using the (audited) financial statements of a fund and their individual Capital Account Statement. Alternatively, the GP can provide a blended TER for the entire fund. In case the GP agrees to calculate the TER of the fund, GPs and LPs should agree on the frequency and a suitable reporting standard, definition of TER and the calculation formula that should then be disclosed in the reporting and applied consistently over the life of the fund.  

Total value to paid-in capital (TVPI)

The sum of the distributions to paid-in capital (DPI) and residual value to paid-in capital (RVPI).

Unfunded commitment

This is the total capital that remains eligible to be called from an investor. Typically, this will be the total commitment less any Capital Calls during the life of the fund except for short-term commitments returned and any recallable (recyclable) distributions.

Unfunded commitment can be split between the amount that has never been drawn from an investor (“undrawn original commitment”) and amounts that have been distributed but are open to being recalled (“recallable distributions”).

Vintage year

Vintage year is generally the year of the first closing or, if later, the year in which management fees commence.