Reference
Private Equity Glossary
Straightforward definitions for the terms that show up in fund documents, pitch decks, and LP conversations. Written for practitioners who need clarity, not jargon piled on top of jargon.
A
Accredited Investor
An individual or entity that meets SEC wealth or income thresholds required to invest in private placements. For individuals, that means $1M+ in net worth (excluding primary residence) or $200K+ in annual income for the last two years. Most PE fund LPs qualify under institutional or entity-level exemptions rather than individual tests.
B
Blind Pool
A fund that raises capital without pre-identified investments. LPs commit based on the GP's track record, strategy thesis, and sector focus rather than specific deals. The majority of PE funds raise as blind pools, which means the fundraising narrative and GP credibility carry disproportionate weight.
C
Capital Call
A formal notice from the GP requesting that LPs transfer a portion of their committed capital to fund an investment or cover expenses. Capital calls typically come with 10-15 business days' notice and are drawn down over the first 3-5 years of a fund's life. Missing a capital call triggers default provisions that can result in forfeiture of the LP's existing interest.
Carried Interest
The GP's share of fund profits, typically 20% of gains above a preferred return threshold. Carry is the primary economic incentive for fund managers and usually vests over the fund's life. A fund with a 1.5x MOIC and standard 20% carry on a $500M fund generates roughly $50M in carry for the GP.
Clawback
A provision requiring the GP to return previously distributed carry if the fund's overall performance falls below the agreed hurdle rate at final liquidation. Clawbacks protect LPs from scenarios where early profitable exits are followed by later losses. In practice, clawbacks are notoriously difficult to enforce and often negotiated down during fund wind-down.
Co-Investment
A direct investment alongside a fund into a specific deal, typically offered to existing LPs at reduced or zero fees. Co-invest has become a major LP demand in recent years, with some large institutions allocating 30-50% of their PE exposure through co-invest vehicles. GPs use co-invest rights as a fundraising incentive and to take down larger deals without concentration risk.
Committed Capital
The total amount LPs have pledged to invest in a fund over its life. This isn't cash sitting in an account; it's a binding obligation to fund capital calls as they come. A $500M fund with $500M in committed capital will draw that down over years, not all at once.
D
Data Room
A secure virtual repository where confidential deal or fund documents are shared with potential investors or acquirers during due diligence. Modern data rooms track who views which documents and for how long, giving the sell side valuable intelligence about buyer seriousness. A well-organized data room can shave weeks off a transaction timeline.
Deal Flow
The pipeline of potential investment opportunities a firm evaluates. Most PE firms review 100+ opportunities for every deal they close, making the quality and proprietary nature of deal flow a genuine competitive advantage. Firms that rely solely on intermediary-sourced deal flow see the same opportunities as every other buyer in the market.
Deal Origination
The process of identifying and sourcing potential acquisition targets before they reach a broad market. Proprietary deal origination means finding targets that aren't being shopped by investment banks, which typically results in lower purchase multiples and less competitive dynamics. The shift from database-driven to intelligence-driven origination is reshaping how firms build pipelines.
Dry Powder
Committed but uncalled capital available for future investments. As of early 2026, global PE dry powder sits above $2.5 trillion, creating intense competition for quality assets. High dry powder levels pressure GPs to deploy capital, which can lead to elevated entry multiples and compressed returns.
Due Diligence
The comprehensive investigation of a target company before closing an acquisition. PE due diligence typically covers financial, legal, commercial, operational, and environmental dimensions and runs 60-90 days for middle-market transactions. The quality of diligence directly correlates with post-acquisition surprises, or the lack of them.
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. It's the standard profitability metric in PE because it approximates cash flow from operations and strips out capital structure decisions. When a PE firm says they're targeting "$10-50M EBITDA companies," they're defining their sweet spot by operational cash flow, not revenue.
Exit Strategy
The planned method for a GP to realize returns on a portfolio company investment. Common exits include strategic sale to a corporate buyer, secondary sale to another PE firm, IPO, or recapitalization. The median hold period for PE portfolio companies has stretched to roughly 5-6 years, up from 3-4 years a decade ago.
F
Family Office
A private wealth management entity that handles investments and financial planning for ultra-high-net-worth families. Family offices have become increasingly active PE investors, with many now making direct investments alongside or instead of fund commitments. There are an estimated 10,000+ single-family offices globally, and their private market allocations have been climbing steadily.
Fund of Funds
An investment vehicle that allocates capital across multiple PE funds rather than directly into companies. Fund of funds provide diversification and access to top-tier managers for investors who can't meet individual fund minimums. The additional fee layer (typically 0.5-1% management fee plus 5-10% carry) means returns need to be materially higher to justify the structure.
G
General Partner (GP)
The entity that manages a PE fund, makes investment decisions, and bears unlimited liability. The GP is typically a separate management company controlled by the founding partners. GP commitment, where the managers invest their own capital alongside LPs (usually 1-5% of fund size), signals alignment of interest.
H
Hurdle Rate
The minimum return threshold the fund must achieve before the GP can collect carried interest. The standard hurdle rate in PE is 8% annually, though it varies by fund strategy and vintage. If a fund returns less than the hurdle, the GP receives only management fees and no carry.
I
Institutional Investor
An organization that invests large pools of capital on behalf of beneficiaries, including pension funds, endowments, insurance companies, and sovereign wealth funds. Institutional LPs typically represent 70-80% of capital in PE funds and bring specific requirements around reporting, ESG, and co-investment rights. Their allocation decisions are often driven by asset-liability matching rather than pure return targets.
J
J-Curve
The pattern of negative returns in a PE fund's early years followed by accelerating positive returns as portfolio companies mature and exit. Management fees and deal costs create immediate drag while value creation takes time. Most funds don't cross the zero line until years 3-4, which is why PE requires genuinely patient capital.
L
Limited Partner (LP)
An investor in a PE fund whose liability is limited to their committed capital. LPs don't participate in day-to-day investment decisions but receive regular reporting and have governance rights outlined in the Limited Partnership Agreement. The LP universe spans from $10M family offices to $100B+ sovereign wealth funds, and each segment has distinct fundraising dynamics.
M
Management Fee
The annual fee LPs pay to the GP for fund management, typically 1.5-2% of committed capital during the investment period and 1.5-2% of invested capital thereafter. On a $500M fund, a 2% management fee generates $10M/year in guaranteed GP revenue regardless of performance. Fee pressure from large LPs has been a persistent trend, with some mega-funds negotiating below 1.5%.
Mezzanine Financing
Subordinated debt that sits between senior secured debt and equity in a company's capital structure. Mezz lenders receive higher interest rates (typically 12-20% total return including warrants) in exchange for junior priority. PE firms use mezzanine financing to bridge the gap between what senior lenders will provide and the equity check they want to write.
MOIC
Multiple on Invested Capital, measuring total value returned relative to total capital invested. A 2.5x MOIC means the fund returned $2.50 for every $1.00 invested. MOIC doesn't account for time, so a 2.5x over 3 years is dramatically better than 2.5x over 8 years. LPs increasingly evaluate MOIC alongside IRR and DPI for a more complete performance picture.
N
P
Placement Agent
A third-party intermediary that helps GPs raise capital from institutional investors. Placement agents typically charge 1-2% of capital raised and work on a success-fee basis. They're most valuable for emerging managers or funds entering new LP geographies. The relationship between placement agents and fundraising advisors is often misunderstood.
Portfolio Company
A business that a PE fund has acquired or invested in. The GP's value creation strategy for portfolio companies typically involves operational improvements, strategic add-on acquisitions, management upgrades, and eventual exit optimization. The average PE firm manages 15-25 portfolio companies across active funds.
Private Placement Memorandum (PPM)
The legal disclosure document provided to prospective investors in a PE fund. The PPM outlines the fund's strategy, terms, risk factors, GP track record, and fee structure. It's not marketing material; it's a legal document designed to satisfy securities regulations. LPs and their counsel review PPMs alongside the LPA and side letter negotiations.
R
Recapitalization
A restructuring of a company's debt-to-equity ratio, often used in PE to extract value without a full exit. A dividend recapitalization, where the portfolio company takes on new debt to pay a special dividend to the PE owner, lets the GP return capital to LPs while maintaining ownership. Recap transactions have been a significant DPI driver in the 2024-2026 slow-exit environment.
S
Sell-Side Advisory
Advisory services that represent a business owner or PE firm in the sale of a company. Sell-side advisors manage buyer identification, process orchestration, valuation positioning, and negotiation. The quality of sell-side execution directly impacts whether an owner captures 80% or 100% of available value. Fees typically run 1-5% of transaction value, inversely scaled to deal size.
Special Purpose Vehicle (SPV)
A legal entity created for a single investment or narrow purpose, isolating that activity from the sponsor's other obligations. In PE, SPVs are commonly used for co-investment vehicles, single-deal funds, and continuation vehicles. SPV formation costs have dropped significantly with modern fund administration platforms, making them accessible to independent sponsors and emerging managers.
T
Track Record
The historical investment performance of a GP, typically measured by fund-level IRR, MOIC, and DPI across prior vintages. Track record is the single most important variable in fundraising. First-time fund managers without an institutional track record face the "emerging manager penalty," where LPs demand higher return thresholds and offer smaller commitments.
V
Vintage Year
The year in which a PE fund makes its first investment or holds its final close. Vintage year matters because macroeconomic conditions at entry heavily influence returns. Funds with 2009-2010 vintages (buying at cycle lows) dramatically outperformed 2006-2007 vintages (buying at cycle peaks), even with similar investment strategies and team quality.
W
Waterfall Distribution
The contractual sequence that determines how fund profits are divided between LPs and the GP. A standard American waterfall distributes deal-by-deal, while a European waterfall distributes only after all committed capital is returned. The waterfall structure directly affects when the GP receives carry and how clawback provisions work. LP-friendly European waterfalls have become more common as institutional investors have gained negotiating leverage.
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