Glossary
Glossary of investment fund finance
Capital call, NAV, carried interest, look-through: the terms used in a management company’s finance function, defined simply.
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- AML/CFT
- Anti-money laundering and counter-terrorist financing: the due diligence obligations that apply to management companies, KYC among them.
- Capital account
- An investor’s capital account in the fund: their commitment, the amounts called and distributed, and their share of the fund’s value at a given date.
- Capital call
- A fund’s request to its investors to pay in part of their commitment, to finance an investment or cover costs. Each investor pays an amount in proportion to their commitment.
- Carried interest
- The share of a fund’s gains allocated to the management team once investors have recovered their capital and, where applicable, a minimum return. It aligns the team’s interests with those of investors.
- Closing
- The date on which new investors join a fund that is raising. A fund may hold several successive closings before the final closing, which ends its fundraise.
- Club deal
- An investment made by a small group of investors who join forces for a given deal, often through a dedicated SPV.
- Commitment
- The amount an investor undertakes to pay into the fund over its life. It is called gradually, through capital calls.
- Depositary
- The institution responsible for safekeeping a fund’s assets and checking that the management company’s decisions are lawful.
- Distribution
- A payment to investors of part of the fund’s proceeds, usually after the sale of a holding.
- DPI
- Distributed to paid-in: the ratio of distributions paid to investors to the capital they have paid in. It measures what the fund has already returned.
- FPCI
- Fonds professionnel de capital investissement: a French private equity fund reserved for professional and similar investors, with more flexible investment rules than funds open to the public.
- Hurdle rate
- The minimum return investors must receive before the management team earns its carried interest.
- Investor due diligence
- An investor’s in-depth review of a management company and its funds, before committing or during the fund’s life: team, strategy, processes, compliance, reporting.
- IRR
- Internal rate of return: the rate at which the present value of the investor’s cash flows in and out equals zero. It measures a fund’s performance taking the timing of those flows into account.
- KYC
- Know your customer: identifying each investor and their beneficial owners, checking documents and assessing risk, before subscription and throughout the relationship.
- Limited partner (LP)
- An investor in a fund who provides capital without taking part in its management. The management team is the general partner (GP).
- Look-through
- Disclosing the detail of a fund’s assets to an investor who must include them in their own calculations, such as an insurer for its prudential requirements.
- Management company
- In France, a société de gestion de portefeuille: a firm authorised by the AMF to manage funds on behalf of investors. It makes investment decisions and runs the administration and finance of its funds, alone or with service providers.
- Management fees
- The management company’s annual fee, charged to the fund under its documentation, most often as a percentage of commitments or invested amounts.
- PMS
- Portfolio management system: a tool that centralises a fund’s portfolio data, investments, valuations and indicators, for monitoring and reporting.
- RAIF
- Reserved alternative investment fund: a Luxembourg alternative investment fund that is not directly authorised by the CSSF; its manager, an authorised AIFM, is accountable for it.
- RCCI
- The compliance and internal control officer that every AMF-authorised management company in France must have, ensuring regulatory obligations are met and internal control works.
- SPV
- Special purpose vehicle: a company set up for a specific transaction, such as a co-investment alongside a fund or a club deal.
- TVPI
- Total value to paid-in: the ratio of the total value created for investors, distributions paid plus the residual value of the portfolio, to the capital they have paid in.
- Valuation committee
- The body that reviews and approves the valuations of holdings before they feed into the fund’s net asset value.
- Waterfall
- The order in which a fund’s distributions are shared between investors and the management team: return of capital, minimum return, catch-up, then sharing of gains.
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