Resource Center



401(K) LOAN

A loan taken from the assets within a 401(k) account. 401(k) loans charge interest and are normally paid back through payroll deductions. If the borrower leaves an employer before a 401(k) loan has been repaid, the full amount of the loan is generally due. If the borrower fails to repay the loan, it is considered a distribution, and ordinary income taxes may be due, along with any applicable tax penalties.  Some 401(k) plans allow a withdrawal in the form of a 401(k) loan; some do not.

401(K) PLAN

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account. 401(k) plans allow eligible employees to defer taxation on a specific percentage of their income that is to be put toward retirement savings; taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement. Employers may match part or all of an employee's contributions. Employees may be responsible for investment selections and enjoy the direct tax savings.

403(B) PLAN

A 403(b) plan is similar to a 401(k). A 403(b) is a qualified retirement plan available to employees of non-profit and government organizations.

475B Plans

Named for a section of the Internal Revenue Code, 457(b) plans help government employees add to their retirement savings in much the same way as 401(k) plans offer retirement help to private-sector employees.

Government employees have taken to these plans, in part, because they can get away with shorting Uncle Sam his due. By investing in 457(b) plans, their contributions are made on a pretax basis (before taxes are deducted from paychecks). Contributions are also deducted from gross income at tax time, which can tip those teetering on the edge of a tax bracket to the lower (and, of course, preferred) tax rate. The level you can contribute to a 457(b) plan has a yearly dollar cap but the dollar amount gets a gradual boost each year until 2006. Employers often offer a 457(b) plan to supplement a defined benefit pension plan.


Account Balance

An account balance is the amount of money in a financial repository, such as a checking account, at any given moment. It can also be the total amount of money owed to a third party such as a credit card company, utility company, mortgage banker or other type of lender or creditor. The account balance is always the net amount after factoring in all debits and credits.

Accredited Investor

An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience. The term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts.

To be an accredited investor, a person must demonstrate an annual income of $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income. An individual must have earned income above the thresholds either alone or with a spouse over the last three years.

A person is also considered an accredited investor if he has a net worth exceeding $1 million, either individually or jointly with his spouse. The SEC also considers a person to be an accredited investor if he is a general partner, executive officer, director or a related combination thereof for the issuer of unregistered securities.

An entity is an accredited investor if it is a private business development company or an organization with assets exceeding $5 million. An organization cannot be formed with a sole purpose of purchasing specific securities. Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor.

Accrued Interest

The interest due on preferred stock or a bond since the last interest payment was made.


The establishment of control in one business entity by another, often with the assistance of private equity. Third party acquisition is a common exit mechanism for private equity funds. The process of gaining control, possession or ownership of a private portfolio company by an operating company or conglomerate.

Active Management

Active Management refers to the attempt by a fund manager to deliberately pick and choose specific investments that will perform better or be less risky than other investments.

Most mutual funds, other than index funds, use active management, though different managers use different methods to pick their investments. Active management is the opposite of passive management, or indexing.

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan.Normally, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly. The interest rate resets based on a benchmark or index plus an additional spread, called an ARM margin.

Adjusted Gross Income (AGI)

Adjusted Gross Income is one figure used in the calculation of income tax liability. AGI is determined by subtracting allowable adjustments from gross income.


A probate-court-appointed person who is tasked with settling an estate for which there is no will.


The return on an investment after subtracting any taxes due.

Aggressive growth fund

A mutual fund offered by an investment company that specifically pursues substantial capital gains. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Alternative Investment

An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of the complex natures and limited regulations of the investments. Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts

Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a percentage of the loan amount. The APR includes interest owed and any fees or additional costs associated with the agreement.

Annual Report

An annual report is a publication that public corporations must provide annually to shareholders to describe their operations and financial conditions.

It is required by the Securities and Exchange Commission (SEC) of any company issuing registered stock, that describes a company's management, operations, and financial reports. Annual reports are sent to shareholders, and must also be available for public review.


A contract with an insurance company that guarantees current or future payments in exchange for a premium or series of premiums. The interest earned on an annuity contract is not taxable until the funds are paid out or withdrawn. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, penalties may apply. The guarantees of an annuity contract depend on the issuing company's claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.


An appraisal is a valuation of property, such as real estate, a business or an antique, by the estimate of an authorized person. To make a valid appraisal, the authorized person must have a designation from a regulatory body governing the jurisdiction of the appraiser. Appraisals are typically used for taxation purposes or to determine a possible selling price for the property in question. The appraiser can use any number of valuation methods to determine the appropriate value to assign, including the current market value of similar properties, quality of the property and valuation models .


Appreciation refers to the increase in the value of a property over time. Appreciation can be caused by a number of things including inflation, the increase in demand or a decrease in supply of properties. Appreciation can also take into account added value as a result of property improvements (such as upgrading a kitchen, adding a room or a pool, etc.). Appreciation is usually projected as a percentage of the property's value over the course of a year.

Asset Allocation

Asset Allocation is rigorous implementation of an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

Asset Class

An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.

Assets (or Capital) Under Management (AUM)

The amount of capital available to a fund management team for venture investments. The total dollar value of capital resources, both invested and un-invested, in a private equity fund or market as a whole.


In accounting, the formal examination of a company's financial records by a qualified professional to determine the records' accuracy, consistency, and conformity to legal standards and established accounting principles. In taxes, the formal examination of a tax return by the Internal Revenue Service or other authority to determine its accuracy.


Balanced Fund

A private equity fund strategy whereby a wide range of investment targets is pursued, as distinct from a Specialized Fund.

Bridge Financing

Capital provided on a short-term basis to a company prior to its going public or its next major private equity transaction. A limited amount of equity or short-term debt financing typically raised within 6-18 months of an anticipated public offering or private placement meant to "bridge" a company to the next round of financing.

A bridge loan is a short-term loan used to offer bridge financing capital. The loans are short term, up to one year, with relatively high interest rates and are usually backed by some form of collateral such as real estate or inventory.


Call Option

The right to buy a security at a given price (or range) within a specific time period.

Capital Call

Also known as a draw down or a capital commitment, is a legal right of an investment firm or an insurance firm to demand a portion of the money promised to it by an investor. A capital call fund would be the money that had been committed to the fund. The capital call is the act of actually transferring the promised funds to the investment target

Capital Gain

Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold, which trigger a taxable eventA capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes. A capital gain can occur on any security that is sold for a price higher than the purchase price that was paid for it. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

Capitalization Rate

The capitalization rate, or "cap rate", is a formula used to determine the value of a real estate investment. The cap rate percentage is found by dividing the net operating income of a real estate asset (expenses minus income) by the current value of the asset. The cap rate is always calculated using the current value of the asset, rather than the purchased value of the asset.

Cash Flow

Cash flow is the flow of money in and out of a business, or in the case of a property, it's rent generated by the monthly rent collected vs. the monthly expenses (taxes, HOA fees, mortgages, etc.). When investing in real estate, most investors look for a positive cash flow from a property.

Cash Flow Property

A cash flow property is an investment property that generates a surplus of money each month after all expenses have been paid. Cash flow properties are highly sought after by investors

Cash on Cash return

Cash on cash return refers the annual cash return of a property divided by the amount of cash invested. When a property is purchased outright (no leverage), this is also referred to as the property's cap rate. When a property is purchased using leverage, this number differs from the property's overall return, as it does not include the equity gained by the principal portion of the mortgage payment.

Closed Fund

A closed fund is a fund that is closed - either temporarily or permanently - to investors. Funds can close for various reasons. Funds primarily close because the investment advisor has determined that the fund's asset base is getting too large to effectively execute its investing style. Closed funds may allow new investments or they may be closed only to new investors alloing current investors to continue to buy more shares. Some funds may provide notice that they are liquidating or merging with another fund.

A closed mutual fund should not be confused with a closed-end fund.

Closed-End Fund (CEF)

A closed-end fund (CEF) or closed-ended fund is a collective investment model based on issuing a fixed number of shares which are not redeemable from the fund. A closed-end fund raises a prescribed amount of capital only once through an IPO by issuing a fixed number of shares, which are purchased by investors in the closed-end fund as stock. Unlike regular stocks, closed-end fund stock represents an interest in a specialized portfolio of securities that is actively managed by an investment advisor, and typically concentrates on a specific industry, geographic market or sector.

It is an investment vehicle to invest in assets that are not freely transferable since they do not invest in assets on an established trading market, and therefore are not marked to market which is a distinction from the open-end fund.


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.

Commercial Real Estate (CRE)

Commercial real estate is one of the three main types of real estate, along with residential and industrial.
Commercial real estate is property that is used exclusively for business purposes and that is leased out to provide a workspace rather than a living space. The definition of commercial properties encompasses industrial properties, medical facilities, office buildings, retail centers, and multifamily complexes. It can also refer to land that will be developed into a commercial project in the future.
While some businesses own the buildings they occupy, the more typical scenario is that an investor owns the building and collects rent from each business that operates there.

While residential real estate lease rates may be quoted in an annual sum or a monthly rent, commercial real estate is customarily quoted in annual rental dollars per square foot.

Leases can run from one year to 10 years or more, with office and retail space typically averaging from five to 10 years. "Larger tenants tend to have longer leases," said Brian McAuliffe, president in CBRE Group's (CBG) Capital Markets division. "Shorter-term leases provide more flexibility to adjust lease rents while longer leases provide more security, especially with credit tenants."

Commercial Real Estate Classifications
Commercial real estate is categorized into different classes. Office space, for example, is divided into one of three classes: class A, class B or class C.

  • Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure and location.
  • Class B buildings are usually older and not as competitive price-wise as Class A buildings. These buildings are often targeted by investors for restoration.
  • Class C buildings are the oldest, usually over 20 years of age, located in less attractive areas and in need of maintenance.

Investing in Commercial Real Estate
Investing in commercial real estate can be lucrative and serve as a good hedge against the volatility of the stock market. Investors can make money via appreciation when they sell, but most returns are generated through rents collected from tenants.

In most cases, properties are sold by the building — one office building, one restaurant, one factory, etc. However, if a developer wants more capital to expand a project or wishes to see the returns more quickly, the project will be broken down into smaller units rather than sold as a whole.

Advantages to Commercial Real Estate
One of the biggest advantages of commercial real estate is the attractive leasing rates. In areas where the amount of new construction is either limited by land or law, commercial real estate can have impressive returns and considerable monthly cash flow.

Industrial buildings generally rent at a lower rate, though they also have lower overhead costs compared to an office tower.

Commercial real estate also benefits from comparably longer lease contracts with tenants than residential real estate. This gives the commercial real estate holder a considerable amount of cash flow stability, as long as the building is occupied by long-term tenants.

Disadvantages to Commercial Real Estate
Rules and regulations are the primary deterrent for most people wanting to invest in commercial real estate. The taxes, mechanics of purchase and maintenance responsibilities for commercial properties are buried in layers of legalese that shift according to state, county, industry, size, zoning and many other designations. Most investors in commercial real estate either have specialized knowledge or a payroll of people who do.

Another hurdle is the increased risk brought with tenant turnover, especially relevant in today's market, when unexpected retail closures have left properties vacant with little notice in advance. With a commercial property, each tenant may have very different needs that require costly refurbishing. The building owner then has to adapt the space to accommodate each tenant's specialized trade. A commercial property with low vacancy but high tenant turnover may still lose money due to the cost of renovations for incoming tenants.

Commitment Period

The period of time within which the fund can make investments as established in the LPA for the fund.

Company Buyback

The redemption of private stock by the management of a Portfolio Company. This is a common Exit Mechanism for private equity funds. The redemption of private of restricted holdings by the portfolio company itself. In essence the company is buying out the VC's interest.

Consumer Price Index (CPI)

CPI is a measure that examines the weighted average prices of a basket of consumer goods and services (such as transportation, food and medical care). Changes in CPI are associated with the cost of living.


Core assets, considered the safest., sit at the bottom of the risk-return ladder. Core properties are relatively stable assets in major metros, such as high-rise office towers or apartment buildings downtown locations in New York City. They are usually best-in-class properties with high, stable occupancy and credit tenants. Core assets can be large and expensive and, therefore, are usually owned by well-capitalized entities, such as REITs and other institutional investors. Because they are already stablized, there is no much value an investor can add, which limits their upside. However, in an economic downturn, they are usually the last to lose tenants. Due to a lack of value-added opportunities that also offer a low risk profile, core investments usually translate to single-digit annual returns.

Leverage with core can range from 0% to 50% of asset value and rarely higher. The reason for low leverage with core is that it is simply not conductive to the use of much leverage given its low unleveraged returns.


Core-plus strategy assets may share many of the same characteristics with core assets with one or more exceptions that create added risk, e.g. these might include the age or condition of the asset, a dip in tenant credit or less than stellar location.

Leverage with Core-Plus is usually 50%-65% of asset value. Leverage is typically limited in order to limit risk and preserve the overall risk-reward balance of the profile.


Distressed Securities

Distressed securities are securities over companies or government entitites that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distrssed debt. As a result of the issuing company's inability to meet its financial obligations, these financial instruments have suffered a substantial reduction in value, but because of their implicit riskiness, they offer investors the potential for high returns. Distressed securities can include common and preferred shares, bank debt, trade claims and corporate bonds.

Distressed debt
Corporate bonds of companies that have either filed for bankruptcy or appear likely to do so in the near future. The strategy of distressed debt firms involves first becoming a major creditor of the target company by snapping up the company's bonds at pennies on the dollar. This gives them the leverage they need to call most of the shots during either the reorganization, or the liquidation, of the company. In the event of a liquidation, distressed debt firms, by standing ahead of the equity holders in the line to be repaid, often recover all of their money, if not a healthy return on their investment. Usually, however, the more desirable outcome is a reorganization, which allows the company to emerge from bankruptcy protection. As part of these reorganizations, distressed debt firms often forgive the debt obligations of the company, in return for enough equity in the company to compensate them. (This strategy explains why distressed debt firms are considered to be private equity firms).


A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, paid to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property. The board of directors can choose to issue dividens over various timeframes and payout rates. Dividens are typically monthly or quarterly.

Investors often view the company's dividend by its dividend yield which measures the dividend in terms of a percent of the current market price. The dividend rate can also be quoted in terms of the dollar amount each share receives (dividends per share, or DPS)

Due Diligence

A process undertaken by potential investors -- individuals or institutions -- to analyze and assess the desirability, value, and potential of an investment opportunity. The process of assessing the business and financial viability of a potential investment target, as well as the potential terms and conditions of an investment agreement.



"Earnings Before Interest, Taxes, Depreciation and Amortization": A measure of cash flow calculated as: Revenue - Expenses (excluding tax, interest, depreciation and amortization). EBITDA looks at the cash flow of a company. By not including interest, taxes, depreciation and amortization, we can clearly see the amount of money a company brings in. This is especially useful when one company is considering a takeover of another because the EBITDA would cover any loan payments needed to finance the takeover.


Equity is essentially how much the stake in ownership on a property is worth; it is the difference between the current market value of a property and the amount owned by the owner on a mortgage (if any). As a mortgage gets paied off the owner's equity grows. The market drives the property's equity but improving and upgrading the property can increase it.

It is a stock or any other security representing an ownership interest. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.

Exit Strategy

A fund's intended method for liquidating its holdings while achieving the maximum possible return. These strategies depend on the exit climates including market conditions and industry trends. Exit strategies can include selling or distributing the portfolio company's shares after an initial public offering (IPO), a sale of the portfolio company or a recapitalization. Exiting climates: The conditions that influence the viability and attractiveness of various exit strategies.


FATCA Self-Certification

The due diligence requirements under the Intergovernmental Agreement (IGA) are either met through the ongoing U.S. tax certification renewal process or by provision of a self-certification.

Self-certification is required for account holders that are either:

  • Financial institutions that are not required to provide U.S. certification for U.S. tax purposes as per announcements A14071 and A15030 and operate in a country that has not signed an Intergovernmental Agreement;
  • Non-financial institutions that are not required to provide U.S. certification for U.S. tax purposes: or
  • Entities operating in the United States that have not provided U.S. tax certification.

A person, company or association who is responsible for investing the assets of the beneficiary in a prudent manner, for example a Registered Investment Advisor, a trustee, etc.

Fixed Income

Fixed income is a type of investment in which real return rates or periodic income is received at regular intervals and at reasonably predictable levels. Fixed-income investments can be used to diversify one's portfolio, as they pose less risk than equities and derivative investments. Retired individuals typically tend to invest heavily in fixed-income investments because of the reliable returns they offer.

Fixed-Rate Mortgage

A mortgage with a set interest rate that will not change over the life of the loan.

Foreign Account Tax Compliance Act (FATCA)

The Foreign Account Tax Compliance Act (FATCA), which was passed as part of the HIRE Act, generally requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments. The HIRE Act also contained legislation requiring U.S. persons to report, depending on the value, their foreign financial accounts and foreign assets.

FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to U.S. persons that may be investing and earning income through non-U.S. institutions. While the primary goal of FATCA is to gain information about U.S. persons, FATCA imposes a punitive tax withholding where the applicable documentation and reporting requirements are not met.


A fund is a source of money that is allocated for a specific purpose. A fund can be established for any purpose whatsoever, whether it is a city government setting aside money to build a new civic center, a college setting aside money to award a scholarship, or an insurance company setting aside money to pay its customers' claims.

In the realm of investments, some types of funds include:Mutual funds: investment funds managed by professional managers who allocate the funds received from individual investors into stocks, bonds and/or other mutual funds.Money market funds: highly liquid mutual funds purchased to earn interest for investors through short-term interest-bearing securities such as Treasury bills and commercial paper.Exchange-traded funds (ETFs): similar to mutual funds, but traded on the public exchanges like stocks.Hedge funds: investment vehicles for high-net-worth individuals designed to increase the return on investors' pooled funds by incorporating high-risk strategies such as short selling, derivatives and leverage.Government bond funds: investors looking to put their money away in low-risk investments can do so through Treasury securities, such as Treasury bonds, or agency-issued debt, such as securities issued by Fannie Mae. Both alternatives are backed by the U.S. government.The government also creates funds that are allocated for various reasons. Some government funds include:Debt-service funds: funds in this vehicle are allocated to repay the government's debt.Capital projects fund: resources in this fund are used to finance the capital projects of a country, such as purchasing, building or renovating equipment, structures and other capital assets.Permanent funds: investments and other resources that the government is not allowed to cash or spend. However, the government normally has the right to spend any revenue these investments generate on appropriate functions of government.

Fund Advisor

This is the company or companies that are given primary responsibility for managing a fund's portfolio.

Fund Commitment/Investment Commitment

A Limited partner's obligation to provide a certain amount of capital to a private equity fund for investments.

Fund Income Distribution

Income distribution represents the number of times per year that a fund intends to make income payments (from either dividends or interest).

A fund generally makes distributions monthly, quarterly, semiannually, or annually.

Fund Income Return

Income return is that portion of a fund's total returns that was derived from income distributions.

Income return will often be higher than capital return for bond funds, and typically lower for stock funds. Adding the income return and the capital return together will produce the fund's total return.

Fund of Funds (FOFs)

A fund set up to distribute investments among a selection of private equity fund managers, who in turn invest the capital directly. Fund of funds are specialist private equity investors and have existing relationships with firms. They may be able to provide investors with a route to investing in particular funds that would otherwise be closed to them. Investing in fund of funds can also help spread the risk of investing in private equity because they invest the capital in a variety of funds.

Fund Size

The total amount of capital committed by the investors of a venture capital fund.


General Partner (GP)

The managing partner in a private equity management company who has unlimited personal liability for the debts and obligations of the limited partnership and the right to participate in its management. The General Partner is the intermediary between investors with capital and businesses seeking capital to grow. See: Limited Partnership.

General Partner Contribution

The amount of capital that the fund manager contributes to its own fund in the same way that a limited partner does. This is an important way in which limited partners can ensure that their interests are aligned with those of the general partner. While the U.S. Department of Treasury has removed the legal requirement of the general partner to contribute at least 1 percent of fund capital. A 1 percent general partner contribution remains standard practice, particularly among venture capital funds.

Grandfatehr Clause

A person or business can sometimes be "grandfathered" or exempt from a new rule if they are already engaged in the activity coming under regulation.

Gross IRR

The IRR based upon the performance of the investments, not taking into account management fees or carried interest.

Growth Investing

Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metris such as price-to-earnings or price-to-book ratios. In typical usage, the term "growth investing" contrasts with the strategy known as "value investing".

Growth of 10,000

The Growth of $10,000 graph shows a fund's performance based on how $10,000 invested in the fund would have grown over time with dividends reinvested. The returns used in the graph are not load-adjusted. The growth of $10,000 begins at the fund's inception, or the first year listed on the graph, whichever is appropriate.

Guaranteed Investment Contract (GIC)

A GIC promises at least a certain minimum return on an investment.

Your employer retiremet plan may have one available. GICs are sold by insurance companies and usually are extremely safe but low-earning investments.


Hedge Fund

Hedge Fund is an aggresively managed porfolio which makes extensive use of unconventional investment tools such as derivatives as well as long and short positions. Hedge funds are alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Hedge funds use different investment strategies and thus are often classified according to investment style.

It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulation than mutual funds and other investment vehicles.

Legally, hedge funds are most often set up as private investment limited partnerships that are open to a limited number of accredited investors and require a large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year, a time known as the lock-up period. Withdrawals may also only happen at certain intervals such as quarterly or bi-annually.


Income Tax

An income tax is a tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

Individual Income Tax
Most individuals do not pay tax on all of their income. Rather, the IRS offers a series of deductions, including mortgage interest, a portion of medical and dental bills, education expenses and several others, which taxpayers subtract from their gross income to determine their taxable income. For example, if a taxpayer earns $100,000 in income and qualifies for $20,000 in deductions, the IRS only taxes the remaining $80,000.

Business Income Taxes
Businesses also pay income on their earnings, and the IRS considers corporations, partnerships, self-employed contractors and small businesses to be businesses. These entities report their business income, and then deduct their operating and capital expenses. The difference is their taxable business income.

State and Local Income Tax
In addition to federal income taxes, many states in the United States also levy income taxes. As of 2016, only seven states do not levy income taxes on their citizens, and they include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee only collect income tax on earnings from dividends and investments.

Individual Retirement Account (IRA)

A qualified retirement account for individuals. Contributions to a Traditional IRA may be fully or partially deductible, depending on your individual circumstance. Distributions from Traditional IRA and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

Initial Public Offering (IPO)

A company's first public offering of stock. In an IPO, investment banks buy a company's shares and then offer them to the public at an offering price. As the stock is traded, the market price may be more or less than the offering price. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Institutional Investor

Pension funds, insurance companies, endowments, charitable foundations, mutual funds and other non-bank financial institutions that are often key suppliers to private equity funds. Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.

Internal Rate of Return (IRR)

Internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.

Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake. IRR is uniform for investments of varying types and, as such, IRR can be used to rank multiple prospective projects on a relatively even basis. Assuming the costs of investment are equal among the various projects, the project with the highest IRR would probably be considered the best and be undertaken first.

IRR is sometimes referred to as "economic rate of return" or "discounted cash flow rate of return." The use of "internal" refers to the omission of external factors, such as the cost of capital or inflation, from the calculation.

The IRR of an investment is the point at which the net value of investment expenses equals the net value of asset income. These are both calculated at the current value of the investment and not the purchased or future value of the property. The internal rate indicates at what point an investment could be considered profitable. If an IRR is above a predefined number it is an acceptable investment. It also establishes the growth potential of an investment.

Investment Advisor Representative (IAR)

An individual who is licensed with a Registered Investment Advisor to offer investment advice.


Refers to the organization issuing or proposing to issue a security.


Know Your Customer (KYC)

Know Your Customer (KYC) regulations implements due diligence procedures for identification procedures of potential and existing clients of a Financial institution.



Leverage is the result of using borrowed funds, margin accounts, or buying securities through rights, warrants or options.

It is an investment strategy of using borrowed money: specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment.

Leverage can also refer to the amount of devt used to finance assets. When one refers to something (a company, a property or an investment) as "highly leveraged", it means that item has more debt than equity.


A lien is a legal right grantd by the owner of property, by a law or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.

Once executed, a lien becomes the legal right of a creditor to sell the colleteral property of a debtor who fails to meet the obligations of a loan or other contract. The property that is the subject of a liean cannot be sold by the owner without the consent of the lien holder.

  1. The closing down or bankruptcy of a company and paying off debts to the shareholders. Debt payments are in order of priority: preferred shareholders are paid first, ending with common shareholders.
  2. Also refers to the forced sale of an investor's account after failure to meet a margin call.
  3. Converting assets into cash.
  1. The ability to buy or sell securities quickly and easily without substantially affecting the asset's price. Large volume, blue-chip stocks like the banks are highly liquid securities. Shares in small companies with low volume activity are not considered liquid. High-level liquidity is considered a good feature for a security or a commodity.
  2. Liquidity also refers to the ability of investors to convert securities into cash. Examples of liquid accounts include bank chequing accounts, passbook accounts, investment certificates, and treasury bills.
Loan-to-value Ratio-LTV ratio

The LTV ratio is a lending risk assessment ration that financial institutions and other lenders examine before approving a mortgage. Typically, assessments with hight LTV ratio are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow.

Loan to Value Ration = Mortgage Amount /Appraised Value of the Property


Management Fee

The cost of having assets professionally managed. This fee is normally a fixed percentage of the fund's asset value; terms of the fee are disclosed in the prospectus.


Margin is the difference between the total value of securities held in an investor's account and the loan amount from a broker. Buying on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset's value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor's account act as collateral.

Market Risk

The volatility of a stock price relative to the overall market as indicated by a measurement called beta. Beta measures the volatility of a stock to the market as a whole. When a stock is said to have a beta higher than 1, it is expected to move up or down more than the market. When beta is below 1, the stock is expected to move less than the market.


The date on which a debt security comes due for payment and on which an investor's principal is due to be repaid.

Money Market Fund

A mutual fund that invests in assets that are easily converted into cash and which have a low risk of price fluctuation. This may include money market holdings, Treasury bills, and commercial paper. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.

Mutual Fund

A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains and/or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a wide amount of securities, and performance is usually tracked as the change in the total market cap of the fund, derived by aggregating performance of the underlying investments.Mutual fund units, or shares, can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS. A fund's NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding.


Net Asset Value

The net market value of a mutual fund's current holdings divided by the number of outstanding shares. The product of this division estimates the per-share value of the fund's assets.

Net Income

A company's total revenues minus its costs, expenses, and taxes. Net income is the bottom line of a company's income statement (which may also be called the profit and loss statement).

Net Worth

The value of a company's or individual's assets minus liabilities.


Open-End Fund

An open-end fund does not have restrictions on the amount of shares the fund can issue. The majority of mutual funds are open-end, providing investors with a useful and convenient investing vehicle. When a fund's investment manager(s) determine that a fund's total assets have become too large to effectively execute its stated objective, the fund will be closed to new investors, and in extreme cases, will be closed to new investment by existing fund investors.

Purchasing shares creates new ones, whereas selling shares takes them out of circulation. Shares are bought and sold on demand at their net asset value (NAV), which is based on the value of the fund's underlying securities and is calculated at the end of the trading day.
An open-end fund provides investors an easy, low-cost way to pool their money and purchase a diversified portfolio reflecting a specific investment objective, such as growth and income. Investors do not need a lot of money to gain entry into an open-end fund, making the fund easily accessible for investment.

Opportunistic Investment Strategy

A strategy characterized by targeting underperforming and/or undermanaged properties, or properties that are temporarily depressed, and then using high degrees of leverage (borrowed funds) to acquire the property, hold it for a short period of time, and then sell it at an expected profit.

Opportunitistic assets are deals that are generally extreme turnaround situations. There are major problems to overcome, such as major vacancy, structural issues or financial distress. Sometimes referred to as distressed assets, opportunitistic strategies may involve acquiring foreclosed assets from banks or servicers or acquiring the senior loan at a discount from banks or servicers with an eye toward eventual foreclosure.

In some cases, opportunistic deals require special expertise to execute the turn around or patience to wait out a downturn in the market to effect a value-added strategy once tenant demand begins to resurface.


Preferred Return (AKA Hurdle rate)

A hurdle rate is the minimum amount of profit or returns a hedge fund must earn before it can charge an incentive fee or performance fee.It is the minimum rate that the company or manager expects to earn when investing in a project.

A hurdle rate of 10% means that the private equity fund needs to achieve a return of at least 10% per annum before the profits are shared according to the carried interest arrangement.

Price/Earnings Ratio (P/E Ratio)

A ratio calculated by dividing a stock's price by its earnings per share. Investors use this ratio to learn how much they are paying for a company's earnings.

Private Debt

Private debt comprises mezzanine and other forms of debt financing that comes mainly from institutional investors such as funds and insurance companies – but not from banks. In contrast to publicly listed corporate bonds, private debt instruments are generally illiquid and not regularly traded on organised markets.

Fund managers generally specialise in specific market segments:

  • Senior debt refers to first ranking, secured loans used to finance buyout transactions and growth funding. Returns are generated almost exclusively by the current interest payments.
  • Mezzanine is an intermediate form between debt and equity. It is used mainly for buyouts and growth finance and is often subordinated to bank debt. Returns are made up of several components; primarily current and final interest payments, as well as warrants for shares in the company being acquired, known as "equity kickers".
  • Credit opportunities funds invest in a wide variety of financing structures and situations. Alongside complex refinancings of companies who are cut off from capital markets for various reasons, the funds also specialise in secondary transactions.
  • Distressed debt funds debt funds mostly buy senior secured loans in the secondary market at a discount to their face value. They concentrate on acquiring sound assets in situations in which companies have run into financial difficulties.
Private Equity

Private equity is capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.

Private Investment Fund

A private investment fund is an investment company that does not solicit capital from retail investors or the general public. A fund must meet one of the exemptions outlined in the Investment Company Act of 1940 to be classified as a private invetment fund. The 3C1 or 3C7 exemptions within the Act are frequently used to establish a fund as a private investment fund. There is an advantage to maintaining private investment fund status, as the regulatory and legal requirements are much lower than what is required for funds that are traded publicly.

In the U.S., under the aforementioned Investment Company Act of 1940, a 3C1 fund can have up to 100 accredited investors and a 3C7 fund can have a soft limit of around 2,000 qualified investors. Both the definition of qualified and accredited investor come with individual wealth tests.


Rate of Return

A measure of the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment's initial cost. Rates of return usually account for any income received from the investment in addition to any realized capital gains.

Real Estate Investing

Real estate can offer investors an important source of diversification.
Financial pros often refer to real estate and real estate securities as inflation hedges. Studies have shown that adding real estate investments to a diversified portfolio increases returns and reduces risk, as these investments have little correlation with the S&P 500.
Investors have a few different options to consider when investing in real estate.

Direct Investment
Most people's home are indeed their largest investments, and the real estate tends to apprecitate in value over time. But there are a few things that investors need to keep in mind if they are going to use real estate as a true investment vehicle by buying a second home, a piece of land, or a rental property:

  1. despite exceptionally strong performance runs, real estate can and does occasionally decline in value.
  2. real estate taxes will constantly eat into returns.
  3. real estate owners must be physically maintaining their properties or must pay someone else to do it, and often must deal with tenants and collect rents.
  4. real estate is ratehr illiquid and takes time to sell.

Other Ways to Invest in Real Estate
Investors can also purchase shares of a real estate investment trust (REIT) or shares of a mutual fund that invests in these securites. REITs own and manage income-producing real estate. They are governed by many regulations: at least 75% of gross income must come from rents, interest from mortgges, or other real estate investments and , most importantly, REITs must distribute at least90% of their taxable income to shareholders each year as dividends.

Real Estate Investment Trust (REIT)

A real estate investment trust, or REIT, is a company that owns, operates or finances income-producing real estate. For a company to qualify as a REIT, it must meet certain regulatory guidelines. REITs often trades on major exchanges like other securities and provide investors with a liquid stake in real estate. 

Most REITs specialize in a specific real-estate sector – for example office REITs or healthcare REITs. Within this space, REITS must purchase and operate its holdings as a part of its portfolio. In most cases, REITs operate by leasing space and passing on collected rent payments to its investors in the form of dividends.

REIT Guidelines
A company must meet the following requirements to be qualified as a REIT: 

  • Invest at least 75% of its total assets in real estate, cash or U.S. Treasuries
  • Receive at minimum 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate
  • Pay a minimum of 90% percent of its taxable income in the form of shareholder dividends each year
  • Be an entity that is taxable as a corporation
  • Be managed by a board of directors or trustees
  • Have a minimum of 100 shareholders
  • Have no more than 50% of its shares held by five or fewer individuals
Real Estate Sector

This sector includes mortgage companies, property management companies and REITs.


A redemption is the return of an investor's principal in a fixed-income security, such as a preferred stock or bond, or the sale of units in a mutual fund.

The redemption of an investment may generate a capital gain or loss, and the taxation of capital gains is reduced by capital losses recognized in the same year. Capital gains and losses are recognized on both fixed-income investments and mutual fund shares.
Redemption Rights – Rights to force the company to purchase shares (a "put") and more infrequently the company's right to force investor to sell their shares (a "call"). A Put allows one to liquidate an investment in the event an IPO or public merger becomes unlikely. One may also negotiate a Put effective when the company defaults or fails to make payments upon a key employee's death, etc.

Redemption Fee

The redemption fee is an amount charged when money is withdrawn from a fund. This fee does not go back into the pockets of the fund company but rather into the fund itself and does not represent a net cost to shareholders.

Unlike contingent deferred sales charges, redemption fees typically operate only in short, specific time periods, commonly 30, 180, or 365 days. However, some redemption fees exist for up to five years. Charges are not imposed after the stated time has passed. These fees are typically imposed to discourage market-timers, whose quick movements into and out of funds can be disruptive. The charge is normally imposed on the ending share value, appreciated or depreciated from the original value.

Registered Investment Advisor (RIA)

An entity registered with the SEC or state to offer investment advice. Regulated under the 1940 Advisors Act.

Regulation D

Regulation D, is the rule (Reg. D is a "regulation" comprising a series of "rules") that allow for the issuance and sale of securities to purchasers if they qualify as accredited investors.

Regulation S

The rules relating to offers and sales made outside the U.S. without SEC Registration.

Required Minimum Distribution (RMD)

Your required minimum distribution is the minimum amount you must withdraw from your account each year. You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reache age 70½.Roth IRAs do not require withdrawals until after the death of the owner.

Residential Real Estate

Residential is one of the three main types of real estate, along with commercial and industrial. Residential property is real estate that has been developed or zoned for living, such as single family houses, apartments, or mobile home parks. Residential property is for non-business use, most often toprovidea home for individuals and families to live in.

Any property that is available for occupation for a non-business purpose may be a residential property. This can include:

  • Condominiums: privately owned units within larger buildings or communities, similar to the structure of apartment buildings.
  • Townhomes: units that are usually larger than condos but still share walls with one or two other buildings.
  • Cooperatives: units within one building where everyone living in the building owns the building together.
  • Single-family houses: usually built on a single lot without having to share space with other dwellings.
  • Multi-family houses: usually range in size from two to four units, such as a duplex or a four-plex, but anything larger than four units is considered commercial property.

The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.


The chance of loss on an investment due to many factors including inflation, interest rates, default, politics, foreign exchange, call provisions, etc. In Private Equity, risks are outlined in the Risk Factors section of the Placement Memorandum.

Risk Tolerance

A measurement of an investor's willingness or ability to handle investment losses.

Risk-Adjusted Return

A measure of how much money your fund made relative to the amount of risk it took on over a specific time period, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities, investment funds and portfolios.

If two funds had a 10% return, the less risky fund would have a better risk-adjusted return. Some common risk measures include alpha, beta, R-squared, standard deviation and the Sharpe ratio.

Roth IRA

A qualified retirement plan in which earnings grow tax deferred and distributions are tax free. Contributions to a Roth IRA are generally not deductible for tax purposes, and there are income and contribution limits. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Rule 501

Rule 501 of Regulation D defines Accredited Investor.


Tax Credit

A credit subtracted from income taxes after preliminary tax liability has been calculated.

Tax Deduction

An amount that can be subtracted from a taxpayer's income before taxes are calculated. Taxpayers may use the standard deduction or may itemize deductions if allowable itemized deductions exceed the standard deduction.

Tax Deferred

A condition of certain plans and accounts under which the funds in the plan or account along with any accrued interest, dividends, or other capital gains, are not subject to taxes until the funds are withdrawn.

Taxable Income

A taxpayer's gross income, minus any adjustments, itemized deductions or the standard deduction, and personal exemptions. Taxable income is used to compute tax liability.


A trust is a legal arrangement that creates a separate entity which can own property and is managed for the benefit of a beneficiary. A living trust is created while its grantor is still alive. A testamentary trust is created upon the grantor's death—usually by another trust or by a will. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.


U.S. Person & Non-U.S. Person

A U.S. person is someone who holds one of the following: U.S. citizenship, by birth or naturalization; a green card (i.e. lawful permanent residency); or political asylum in the United States. A non-U.S. person is someone who does not have such a status, even if he or she is in the United States or is a student or employee of Cornell. A transfer of controlled items, information, or software to a non-U.S. person in the United States is deemed an export to the country of their mostly recently acquired citizenship.



Value-added assets generally have a problem that needs fixing, such as leasing to improve significant vacancy, renovation or re-tenanting to improve the quality of the rent roll. The purchaser is usually coming in with a specific business plan to improve an under-utilized asset. The purchaser will have an opprotunity to buy a property at a discount given the absence of an anchor. If the new owner has an effective business plan to reposition the anchor space and bring new tenants to the property or improve the building overall condition, the new owner can meke a substantial profit.

Leverage with Value-added is usually 65%-85% of asset value. Unleveraged returns are high enough to entice additional use of leverage to further enhance leveraged returns.

Venture Capital

Source of funding for start-up companies that entails some investment risk but offers the potential of above-average gains. Also called "risk capital." Some sources of venture capital come from wealthy individuals called "angel investors" in the industry, or small business investment companies.


A measure of the range of potential fluctuations in a security's value. A higher volatility means the security's value can potentially fluctuate over a larger range of potential outcomes—up and down.



The process by which an employer holds back part of an employee's compensation to pay his or her share of income, Social Security, and Medicare taxes. Amounts withheld are paid to the IRS in the employee's name.