Investment glossary

Also called Carry, Performance allocation

Carried interest is the share of a fund's profits allocated to the manager as performance compensation, paid only after investors have received the returns that rank ahead of it in the distribution waterfall.

Also called Cayman ELP, Exempted limited partnership

A Cayman exempted limited partnership is a partnership formed in the Cayman Islands in which one general partner bears unlimited liability and manages the business, while limited partners contribute capital and have liability limited to their commitment. It is a standard vehicle for closed-ended investment funds.

A closed-ended fund raises capital during a defined commitment period, invests it over a fixed term, and returns capital through distributions and at wind-up. Investors have no right to redeem their interests before the term ends.

Also called Waterfall, Distribution priority

A distribution waterfall is the contractual order in which a fund's cash is paid out among investors and the manager. Each tier must be filled before any money reaches the tier below it.

Also called Shared yacht ownership, Yacht syndication

Fractional yacht ownership is an arrangement in which several parties share the ownership and running costs of a specific vessel, and each receives an allocation of time to use it. It is primarily a way to reduce the cost of using a yacht, not an income strategy.

Also called Catch-up, General partner catch-up

A GP catch-up is the tier of a distribution waterfall in which the fund manager receives a disproportionately large share of distributions, after investors have received their preferred return, until the manager has reached its agreed overall share of profits.

A management fee is the recurring charge a fund manager takes for operating the fund, calculated as a percentage of either committed capital or net asset value, and payable regardless of whether the fund performs.

Also called Hurdle rate, Pref

A preferred return is a threshold rate of return that investors in a fund are entitled to receive out of distributions before the manager takes any share of the profits. It sets the order in which money is paid out; it does not promise that the money will be there.

Also called Per se professional investor, Elective professional investor

A professional investor is an investor who, under EU and EEA rules, is treated as having the experience, knowledge and expertise to make its own investment decisions and assess the risks involved, and who therefore receives fewer regulatory protections than a retail investor.

Also called Reg S

Regulation S is the rule under United States securities law that treats offers and sales of securities made outside the United States as falling outside US registration requirements, provided the offering is genuinely offshore and no directed selling efforts are made into the United States.