42 DEFINITIONS Internal Rate of Return (IRR) | The discount rate at which the present value of future cash flows of an investment equals the cost of the investment. It is determined when the net present value of the cash outflows (the cost of the investment) and the cash inflows (returns on the investment) equal zero, with the discount rate equal to the IRR. IRR is typically used as a measure of performance for private equity funds relative to other asset classes, and for the pur- poses of performance benchmarking. Investment Period | The time from the initial closing of the fund to the end date as specified in the LPA, or the date of an early termi- nation of the Investment Period, during which capital can be called from LPs to fund investments. Key Person Clause | If a specified number of key named execu- tives cease to devote a specified amount of time to the Partnership, which may include time spent on other funds managed by the man- ager, during the commitment period, the “key person” clause pro- vides that the manager of the fund is prohibited from making any further new investments (either automatically or if so determined by investors) until such a time that new replacement key executives are appointed. The manager will, however, usually be permitted to make any investments that had already been agreed to be made prior to such date. Limited Partner Advisory Committee (LPAC) | A committee of LPs within the fund comprising a cross-section of LPs, mandated to consider conflicts of interest and provide the GP with guidance on any material situations impacting the fund. Limited Partnership Agreement (LPA) | Legally binding docu- ment that articulates the operating rules for a fund together with the rights and responsibilities of the parties subscribing to it; see Fund formation documents. Management Fee | The management fee is used to provide the partnership with resources such as investment and administrative personnel, office space and administrative services required by the partnership. Typically, the management fee is charged as a percent- age, e.g., 1-2%, of committed or invested capital, or some combi- nation thereof. Management Fee Offsets | The extent to which monitoring, transaction, and other fees charged directly to portfolio companies and paid to the GP are offset against management fees paid by the LP to the GP, typically 60-100%, with 100% offset preferred by LPs. MOIC | The return to LPs on the investment expressed as a multiple of the individual LP’s investment determined by dividing the aggre- gate amount of distributions received by the LP by the aggregate amount of capital invested by the LP. NAV (Net Asset Value) | The amount by which the value of all of the assets of a fund exceeds all debt and liabilities of the fund, as determined in accordance with GAAP or other accounting or valu- ation metrics. No Fault GP Removal | A clause in the LPA that permits investors, after the final closing date, to remove the GP and either terminate the Partnership or appoint a new general partner, such as in circum- stance where there has been no finding of breach of contract. Partnership Expenses | Expenses borne by the partnership in- cluding costs associated with the organization of the partnership, the purchase, holding or sale of securities, and legal and auditing expenses. Preferred Return (Hurdle Rate) | The internal rate of return that a fund must achieve before the GP or managers may receive an in- creased interest in the proceeds of the fund. Often, if the expected rate of return on an investment is below the hurdle rate, the project is not undertaken. Private Placement Memorandum (PPM) | (Also known as an Offering Memorandum or “PPM”) A document that outlines the terms of securities to be offered in a private placement including a formal description of the investment opportunity drafted in com- pliance with securities regulations and addresses the terms of the sale, fees, capital structure and historical financial statements; a de- scription of the business; summary biographies of the management team; and the numerous risk factors associated with the investment. Recycling | A provision in the LPA allowing the GP to recycle the proceeds from an exit back into the fund, within a defined period of time. Recycled capital is added back to the LP’s undrawn capital commitment and available for draw down for further investments during the investment period. Standard of Care | The degree of care or competence that the GP is expected to exercise in its investment decisions and control of the fund, typically framed as a good faith standard subject to the care that an ordinarily prudent person would exercise under similar circumstances. Subscription Lines of Credit | Often referred to as bridge financ- ing, typically a short-term revolving line of credit secured by the un- called commitments to the fund, collateralized by awarding capital call rights to the lender. Syndication | A number of investors offering capital together as a group on a particular deal. A lead investor may coordinate such deals and represents the group’s members. Also see: Co-invest- ment. Total Value to Paid In (TVPI) | The ratio of the current value of remaining investments within a fund, plus the total value of all dis- tributions to date, relative to the total amount of capital paid into the fund to date. TVPI is considered to be preferable measure of performance before the end of a fund’s life. Vintage Year | Either the year of first closing, or the year in which management fees commence. Waterfall | Delineates the method by which capital gains are al- located between the participants in an investment, by defining the order in which distributions are allocated to LPs and the GP. The preferred waterfall structure distributes all committed capital back to LPs before the GP begins to accrue carried interest, also known as a whole of fund waterfall structure.