Private Equity Fund Terminology

Capital Commitments – The amount of capital that each limited partner agrees to contribute to the fund
when and as requested by the general partner. Most private equity funds impose a minimum subscription
amount or capital commitment threshold in order to become a limited partner

Capital Contributions – The amount of capital that is contributed to the fund when and as requested by
the general partner in connection with investments to be made by the fund.

Investment Period – The period during which the general partner is permitted to make new investments
on behalf of the private equity fund in portfolio companies. Subsequent to the termination of such period,
the limited partners typically are released from further obligations with respect to their unfunded capital
commitments, except necessary to cover expenses, liabilities and obligations of the fund, including
management fees; fund then existing commitments and complete investment by the fund in transactions
that were in process as of the end of the investment period; and effect follow-on investments in existing
portfolio companies.

Fees – May include start-up or organizational costs, placement fees, servicing fees, management fees, carried
interest, and transaction fees. Fund of private equity funds may also be charged fees by the underlying
private equity funds in which they invest.

Carried Interest (sometimes called a performance allocation or incentive fee) – A share of the profits from
a private equity fund’s investments that is paid to the general partner as a performance incentive. The
performance incentive is typically not paid until the limited partners realize a threshold rate of return. The
remaining profits are paid to the fund’s investors.

Hurdle Rate or Preferred Return – A minimum rate of return which must be achieved by the limited
partners before the general partner can receive its carried interest.

Portfolio Company – A company in which the private equity fund invests

Term – The life or duration of the private equity fund. The term of a private equity fund is often 10 to
12 years with potential extensions of a few additional years.

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