The vocabulary of running a fund

A capital account is the running balance of a single partner's economic interest in a fund: contributions in, allocations of income, gains and losses, less distributions out.

A capital call, also called a drawdown, is a notice from the general partner requiring each limited partner to wire a portion of their committed capital to the fund by a due date, usually ten business days, to fund investments, fees or expenses.

Carried interest is the general partner's share of a fund's profits, typically 20%, paid through the distribution waterfall only after limited partners have received their contributed capital and, usually, a preferred return.

A distribution waterfall is the sequence in which a fund's proceeds are allocated between limited partners and the general partner, typically return of contributed capital first, then a preferred return to LPs, then a catch-up to the GP, then the remaining profit split at the carried interest rate.

DPI, distributions to paid-in capital, is the total cash and stock distributed to limited partners divided by the total capital they have contributed.

Form ADV is the uniform form that investment advisers, including most venture and private equity fund managers above the exempt reporting threshold, file with the SEC to register or report, disclosing their business, ownership, conflicts and, in Schedule D Section 7.B, each private fund they advise along with its auditor, administrator and prime broker.

Form D is the notice of exempt offering of securities that an issuer, including a private fund, must file with the SEC within 15 days of the first sale in an offering relying on Regulation D, disclosing the issuer, the exemption claimed, the amount sold and the total offering amount.

A fund administrator is the firm, or the software operated in-house, that maintains a private fund's books: partner capital accounts, capital call and distribution processing, fee and waterfall calculations, NAV, investor statements and audit support.

The hurdle rate, also called the preferred return, is the annual return, commonly 8%, that limited partners must receive on their contributed capital before the general partner is entitled to carried interest in the distribution waterfall.

KYC (know your customer) and AML (anti-money-laundering) are the checks a fund performs on each prospective limited partner before accepting their subscription: verifying identity and beneficial ownership, screening against sanctions and politically exposed person lists, and documenting the source of funds, with records kept for audit and regulatory review.

An LP portal, or investor portal, is the secure website where a fund's limited partners log in to view their capital account statements, capital call and distribution notices, quarterly reports, tax documents and fund legal documents, replacing email and PDF distribution.

The management fee is an annual charge paid by the fund to the management company, typically 2% of committed capital during the investment period, often stepping down afterwards to a lower rate or a basis of invested capital, to cover salaries, rent and the cost of running the firm.

A qualified purchaser is an investor who meets the Investment Company Act threshold, generally an individual or family company with at least $5 million in investments or an entity with at least $25 million, which a fund relying on the Section 3(c)(7) exemption must verify for every limited partner.

A side letter is a bilateral agreement between a fund and a single limited partner that grants that LP terms beyond the limited partnership agreement, such as a management fee discount, most-favoured-nation rights, co-investment rights, excuse rights or additional reporting, and must be tracked and honoured in every subsequent calculation and notice.

TVPI, total value to paid-in capital, is the sum of distributions to limited partners and the current net asset value of the fund, divided by the capital LPs have contributed.