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Private Capital Investment Terms

Industry Definitions

In this article

Uncover the many terms used in private capital, including in the private debt, infrastructure, and natural resources asset classes.

General terms

A range of money that an investor looks to commit to each vehicle in which it invests. In some cases, it is taken as an investor’s average commitment to funds it has committed to in the past, and can vary with different fund types.
The specified sum of capital an LP has agreed to contribute to a private capital fund. The sum of commitments to a private equity fund equals the total size of the fund.
Credit FacilityShort-term loans provided by banks to private capital funds secured against the LP commitments in the fund.
Current Allocation The total amount invested in a specified asset class as a percentage of an institutional investor’s total assets or total investment portfolio.
DrawdownThe actual act of transferring capital into the fund’s portfolio companies. When the GP has decided where it would like to invest the fund capital, it will approach its LPs in order to draw down some of the capital that has already been committed to the vehicle.
Direct InvestmentCompany or asset acquired for investment purposes, that is not made through an investment in private funds or similar structures.
Dry PowderThe amount of capital that has been committed to a private capital fund minus the amount that has been called by the GP for investment.
First-Close InvestorAn investor that will commit to a fund before it has held a first close. The investor is usually given an incentive by the fund manager to make a commitment before the first close, such as reduced fees.
First-Time FundThe first vehicle raised by a fund manager. Usually from a firm or fund management team that has not previously raised any funds.
Fundraising OutlookAnnounced – a fund has been announced / the fund manager has confirmed directly that they are planning to start fundraising in the future.

Estimated – fund has been mentioned in the news or public domain that it is planned to start fundraising in the future.
General ConsultantProvides advice on the overall investment strategy of an institution.
General Partner (GP)The partner in a limited partnership responsible for all management decisions of the partnership. The GP has a fiduciary responsibility to act for the benefit of the limited partners (LPs) and is fully liable for its actions.
Interim CloseWhile the fund is in market it may have interim closes. These closes are named in the sequence they occur. The first interim close is termed ‘first close’, ‘second close’, ‘third close’, etc. Once the fund has held a first close, it can begin to make investments.
Investment ConsultantA firm that provides advisory services for a fee. Different consultants can be hired for an individual investor operating on different parts of their investment portfolios and/or strategies. Consultants can be:

Discretionary: Makes all investment decisions on behalf of an institution, but within specific guidelines.

Non-Discretionary: The investor retains the decision on whether or not to invest in the consultants recommendations.
LeverageBorrowed money to finance the acquisition of an asset or company.
Leverage RatioAny ratio used to measure the ability of a company to meet financial obligations; main factors likely include debt, equity, assets, and interest expenses.
Limited Partner (LP)Institutions or high-net-worth individuals/sophisticated investors that contribute capital to a fund.
Limited PartnershipConsists of the GP that makes the fund investments and the LPs that have committed capital to the fund. The partnership generally has a 10-year life span, although the capital is usually invested after 3-5 years, before the GP exits the underlying companies for a return on behalf of the LPs.
Listed InvestmentInstruments that are publicly traded on a stock exchange. This includes asset class specific-instruments like Real Estate Investment Trusts (REITs), as well as shares of other listed companies, and listed funds.
Preferred EquitySenior equity on the capital structure over common or subordinate classes.
Primary FundAn investment vehicle that invests directly in a company or asset.
Private CapitalRefers to a broad spectrum of private investment funds that invest in unlisted companies and assets. Includes private equity, venture capital, private debt, real estate, infrastructure, and natural resources.
Route to MarketAn investor’s preferred method for investing in private capital. Investors may have preferences for investing in unlisted or listed funds, or for investing directly in an asset class.
Single Deal FundA dedicated vehicle created for the purpose of making an investment in a single target opportunity. Investors have full transparency on the underlying investment that will be made.
Source of AllocationThe specific segment of their portfolio from which investors allocate to a specific asset class. For example, natural resources investors may have a distinct allocation, or it may be considered part of their other allocation brackets such as private equity, real assets, or infrastructure.
Source of CapitalSpecifies the range of methods that a fund manager uses to raise capital to make investments. Fund managers can raise capital from listed or unlisted funds, separate accounts or their own balance sheet, or they can raise capital from investors on a deal-by-deal basis.
Spin-offA fund management team that has spun out from a previous firm to create its own organisation to raise and manage funds under the umbrella of their new firm.
Target AllocationPre-determined proportion of total assets to be invested in a specified asset class. Often a percentage, an institutional investor will seek to reach or maintain this target in the long term.

Private debt-specific

ArrangerOne or several commercial or investment banks that structures, arranges, and administers a syndicated loan.
BilateralInvolving a single lender and a single borrower.
BookrunnerMain underwriter or manager in a new issuance of a debt security.
Bridge LoanA short-term loan providing immediate cash flow that is used until a company secures permanent financing. Loans are typically short-term, relatively high interest, and backed by collateral.
Bullet LoanLoan requiring a balloon payment at the end of the term. This arrangement anticipates a refinancing of the loan to meet payment obligation.
Collateralized Loan Obligation (CLO)A security backed by a pool of debt, which includes several levels of credit ratings and repayment structures.
CovenantAn indenture in a formal debt agreement for certain activities to be carried or not carried out.
Covenant-Lite (Cov-Lite)A loan with limited restrictions on the debt-service capabilities of the borrower, including fewer restrictions on collateral and payment terms than traditional covenants.
DebentureDebt instrument backed exclusively by the creditworthiness and reputation of the issuer, generally issued by governments and corporations.
EBITDAEarnings before Interest, Taxes, Depreciation, and Amortization. Usually where cash flow for debt repayment is sourced.
First LienPrimary rights of a creditor to sell the collateral property of a borrower that fails to meet the obligations of a loan contract.
Fixed RateA predetermined rate for either the entirety or part of a loan term.
Floating RateA variable interest rate that moves with market factors or an index. Opposite of a fixed rate.
High YieldInvestments in debt securities that are below investment grade. Such bonds typically pay higher yields than investment-grade government or corporate bonds to compensate for the perceived higher risk of default.
Non-Bank LenderAlso referred to as ‘shadow bankers,’ any entity engaging in loan activity and not classified as a banking institution. Examples are private equity firms, specialty finance companies, and hedge funds
Non-Performing Loans (NPLs)A loan that is in default or is close to being in default.
Non-SponsoredA direct loan transaction between a lender and borrower without involvement of a private equity sponsor.
NotesCertificates evidencing the amount owed by the private placement borrower to the investor. Transferable on completion of a certificate sent to the borrower.
Payment in Kind (PiK)Arrangement that pays interest or dividends to investors of bonds, notes, or preferred stock with additional debt or equity instead of cash.
Primary LoanLoan made directly to a borrower/company.
Private DebtNon-listed debt issues. May take the form of bonds, notes, or loans. Includes all non-bank lending.
RefinanceRevising or replacing an older loan with new debt offering more favourable terms for the borrower.
Revolving CreditA line of credit allowing the borrower to use funds when they are needed, depending on cash flow needs.
Royalty-Backed LendingAn alternative loan to be repaid using a percentage of the borrowing business’s revenue, traditionally found in industries such as mining, film production, and drug development.
Second LienDebts that are subordinate to the rights of other, more senior debts issued against the same collateral.
Secondary LoanA loan sold on a secondary market.
Secured LoanA loan backed by the borrower’s assets, typically real estate, equipment, or cash flows.
Senior StretchA type of loan to a business that includes characteristics of both asset-based and cash-flow loans. Senior stretch loans are cheaper than cash-flow loans as the borrowing company has a healthy balance sheet.
Special Purpose Vehicle (SPV)A company that has activities limited to buying and financing certain assets by issuing bonds to investors.
SponsoredA deal involving a third-party purchase of a company, typically a private equity firm.
Subscription Credit FacilityShort-term loans provided to alternative asset fund managers to cover transactional costs, suppressing the need to immediately call up capital from limited partners.
SyndicatedA loan offered by a group of lenders that work together to provide funds to a single borrower.
Term LoanBank loan for a specific amount that has a pre-determined repayment schedule as well as a floating interest rate.
Term Loan BA sub-prime loan to a borrower with credit graded ‘B’ according to credit history.
Term Loan CA sub-prime loan to a borrower with credit graded ‘C’ according to credit history.
UnsecuredA loan not backed by collateral or assets.


BrownfieldInvolves an existing asset or structure that requires improvements, repairs, or expansion. The infrastructure asset or structure is usually partially operational and may already be generating income.
Economic InfrastructureThe combination of basic facilities which are helpful in economic development of a nation, region, or city. Includes energy, logistics, telecommunications, transportation, utilities, and waste management.
Involves an asset or structure that does not currently exist and needs to be designed and constructed. Investors fund the building of the infrastructure asset as well as the maintenance after it is designed, built, and operational.
Infrastructure Bond
A debt investment in which an investor loans capital to an infrastructure project or company for a defined period of time at a fixed interest rate. Bonds are traditionally issued by companies, municipalities, and both local and central governments.
Organisation for Economic Co-operation and Development

The OECD is an intergovernmental economic organization founded in 1961 committed to democracy and the market economy. The organization aims to support sustainable economic growth, boost employment, raise living standards, maintain financial stability, assist other countries’ economic development, and contribute to growth in world trade. As of January 2020 there are 37 member countries: Australia, Austria, Belgium, Canada, Chile, Colombia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, the UK, and the US. Countries whole membership is under consideration is Argentina, Brazil, Bulgaria, Croatia, Peru, and Romania.
Private Finance Initiative (PFI)
A form of PPP developed by the Australian and UK Governments.
Public-Private Partnerships

Contractual agreements between public bodies, local authorities or central government, and private companies to deliver a public, social, or economic infrastructure project.
Real Assets
Generally applied to those assets that are tangible in nature, and often expected to provide valuation protection during inflationary periods. The definition of ‘Real Assets’ varies across the industry but can include real estate, infrastructure, and natural resources. Also known as Hard Assets.
Secondary Stage
Involves a fully operational asset or structure that requires no investment for development.
Social Infrastructure
Assets that accommodate social services. Includes educational facilities, defence-related assets, government buildings, healthcare/medical facilities, and judicial buildings.

Natural resources-specific

Commodity PreferenceThe underlying natural resource which the fund seeks to cultivate or extract. For example, an energy fund may focus on investments in oil, natural gas, uranium, coal, or renewable energy.

Master Limited Partnership (MLP)

A type of limited partnership that is publicly traded on an exchange. MLPs combine the tax pass-through benefits of a limited partnership with the liquidity of a publicly-traded vehicle. In order to qualify as an MLP the partnership must earn at least 90% of its income from qualified sources such as natural resources, commodities, or real estate. Qualifying natural resources include: oil, gas, coal, and timber.

Primary – DebtA fund’s preference for direct investment in the debt securities of portfolio companies, as opposed to equity securities or investments through other natural resources funds.

Primary – EquityA fund’s preference for direct investment in the equity securities of port.
Process/Stage PreferenceThe stage of the extraction/cultivation process on which the fund focuses. For example, an energy fund may specialize in upstream, midstream, or downstream energy investments and a mining fund may focus on investments in companies that directly extract minerals or those that refine them.

Project/Asset-Stage Preference

The stage of a natural resources project at which the natural resources fund seeks to invest. For example, funds may focus on investments in projects that are already established or come in at an earlier stage such as the initial construction or development stage.

Strategy AllocationThe proportion of a fund’s capital dedicated to primary investments in equity and debt, fund of funds investments, or secondary investments.