Glossary
Fund formation glossary
Launching a private fund means working through a dense stack of documents and terms. This glossary gives plain-English definitions of the core fund formation concepts — from the LPA and PPM that govern a fund to the regulatory filings and structures that sit around it — so founders, investors, and their teams can speak the same language.
LPA (Limited Partnership Agreement)
The governing contract of a private fund organized as a limited partnership. It sets out the relationship between the general partner and the limited partners — including economics, governance, capital commitments, distributions, and the rules for running and winding down the fund.
PPM (Private Placement Memorandum)
The primary disclosure document offered to prospective investors in a private fund. It describes the fund's strategy, terms, management team, fees, conflicts of interest, and risk factors, and is the main vehicle for satisfying the issuer's disclosure obligations under securities laws.
Subscription Agreement
The contract by which an investor commits to invest in a fund and is admitted as a limited partner. It typically includes the investor's representations and warranties — such as accredited investor or qualified purchaser status — and the amount of the capital commitment.
Side Letter
A separate agreement between the fund (or its general partner) and an individual investor that modifies or supplements the standard fund terms for that investor. Common provisions cover fee discounts, reporting rights, co-investment access, and excuse or transfer rights.
General Partner (GP)
The entity that manages a private fund and makes its investment decisions. The GP owes fiduciary duties to the fund, bears unlimited liability for partnership obligations, and is generally compensated through a management fee and carried interest.
Limited Partner (LP)
An investor in a fund organized as a limited partnership. LPs supply the bulk of the capital, have limited liability capped at their committed capital, and are passive — they do not participate in the day-to-day management of the fund.
Capital Call
A formal request from the general partner asking limited partners to transfer a portion of their committed capital so the fund can make investments or pay expenses. Capital is typically drawn down over time rather than collected in full at closing.
Management Fee
A recurring fee paid to the general partner or manager to cover the cost of operating the fund. It is commonly calculated as an annual percentage of committed or invested capital — often around 2% — and may step down later in the fund's life.
Carried Interest (Carry)
The general partner's share of a fund's investment profits, serving as the primary performance incentive. It is frequently set at 20% of gains and often payable only after limited partners receive their capital back plus a preferred return (hurdle rate).
MFN (Most Favored Nation)
A side-letter mechanism that lets an investor review the side-letter terms granted to other investors and elect to receive comparable provisions. MFN rights are commonly tiered by commitment size, so larger investors can elect a broader set of terms.
Form ADV
The registration and disclosure form that investment advisers file with the U.S. Securities and Exchange Commission and state regulators. It describes the adviser's business, ownership, clients, fees, disciplinary history, and conflicts of interest, and includes a plain-English client brochure (Part 2).
Form PF
A confidential reporting form filed with the SEC by certain SEC-registered investment advisers that manage private funds. It collects data on fund size, leverage, liquidity, and exposures, primarily to help regulators monitor systemic risk.
SPV (Special Purpose Vehicle)
A separate legal entity formed for a single, narrow purpose — often to pool investors into one specific deal or to isolate a particular asset or liability. In private markets, SPVs are widely used for one-off co-investments and syndicated deals.
Feeder Fund
An entity that pools capital from a particular group of investors and channels it into a central master fund, which conducts the actual trading or investing. Master-feeder structures are commonly used to bring together U.S. taxable, U.S. tax-exempt, and non-U.S. investors efficiently.
Ready to put these documents to work? See how AI fund formation software drafts and reviews the full document set, why it fits emerging managers, or walk through the steps in our guide on how to form a venture fund.