41 ILPA Principles 3.0 Definitions Affiliates and Related Parties | With respect to any spec- ified Person, an Affiliate is a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. Port- folio Companies, Fund Vehicles and Feeder Entities are ex- empted from the Affiliate designation. Each Key Person, the General Partner and the Fund Manager are generally considered to be an Affiliate of the others. Break Up Fee (Broken Deal) | Requires the party responsible for a break-up in an acquisition to pay the other party a negotiated amount of liquidated damages. Bridge Financing | In the context of subscription lines of credit, short-term fund-level financing secured by uncalled LP commit- ments and intended primarily to temporarily finance investments or expenses in advance of calling capital from LPs. See also: Subscrip- tion Lines of Credit. Capital Call | (Also known as a draw down) Capital that LPs have pledged to the fund that is requested and transferred from LPs to GP to finance an investment or fund expenses. Carried Interest | (Also known as carry) An agreed share of the profits resulting from the realization of an investment, accruing to the GP. Calculation of carried interest is stipulated within the fund’s legal documents and becomes payable once investors have re- couped their original investment in the fund, plus a defined hurdle rate, if applicable. Change of Control Provision | A clause in a business contract which stipulates that if ownership of a majority of the equity of the management company changes hands, then the other party to the contract has a right to cancel, usually without liability for paying any compensation. Clawback | A limitation on the GP’s ability to collect a greater share of the fund’s cumulative profits over the life of the fund than the specified percentage stipulated by the LPA. When triggered, the clawback provision requires that the GP return to the fund’s LPs an amount equal to what is determined to be “excess” distributions. Closing (Fund) | The first closing is the date on which the first LPs have made their commitments and are admitted to the fund. The final closing date is the date on which the last LP is admitted to the fund and the fund is closed to any further subscriptions from inter- ested LPs. Co-investment | The syndication of a private equity financing round or an investment by individuals (usually general partners) alongside a private equity fund in a financing round. Two or more investors in a given transaction. Also known as syndication. The average rate of co-investment is the total number of investments made in the total number of deals in a given period. Commitment (Fund) | An LP’s contractual obligation to provide capital to a fund, in response to capital calls from the GP for fund in- vestments, to up to the amount specified in the subscription agree- ments. Cross-fund Investing | Where a firm invests in the same company at different times from different funds, i.e., uses their current fund towards a financing round in a company which forms part of the portfolio of one of their earlier funds. Distributions | Cash and/or securities, i.e. payments “in-kind”, delivered to LPs, excluding amounts returned in relation to tem- porary, bridging or aborted investments and net of any distributed amounts which have subsequently been clawed back, e.g. for war- ranty claims. ESG | Environmental, social and governance factors that can impact the performance of a portfolio company, the investment portfolio as a whole, or the GP itself. It is a phrase commonly used alongside and in the context of responsible investment. Fiduciary Duty | The legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary and a principal. In the fund context, it is the obligation of the GP to put the interests of the fund as a whole before that of a subset of investors or of the GP itself. Fund | A designated pool of capital targeted at private equity in- vestment, established with the intent to exit investments within a stated timeframe. Fund Formation Documents | All legal documents pertaining to the obligations and rights of the GP and LP, including the Limited Partnership Agreement (LPA), any side letters agreed by the LP and GP, and subscription documents binding the LP to the fund. General Partner Commitment | (Also known as the GP Contri- bution) The amount of capital that the GP contributes to the fund, alongside LPs in the partnership. The GP commitment is a critical aspect of alignment of interest with the LPs in the fund. Standard practice is that the GP commit 2-5 percent of the capital of the fund as a whole. GP-Led Secondary | A secondary transaction in which the GP, on behalf of the fund, enters into an agreement with an acquirer to purchase a significant portion of the assets of the fund. Existing LPs of the fund are provided with the option to: (a) sell and receive a pro rata portion of the cash purchase price, (b) “roll” their pro rata share of the LP interests in the fund into a special purpose vehicle (SPV) established to purchase the assets of the target fund or (c) in some cases, to receive a combination of options (a) and (b). Indemnification | Typically included within the LPA along with the exculpation provision, an indemnity clause protects the GP from third party claims related to the underlying transactions within the fund. The exculpatory clause addresses exemptions to the indemni- ty that would bar the LP or third parties from pursuing a legal claim against the GP in particular circumstances as stated in the LPA. DEFINITIONS