Transactions

A written notice to investors requiring them to pay into the fund a portion of their commitment. The Limited Partnership Agreement sets a minimum notice period, normally 10 days.

A partnership, company or other entity in which a fund has invested. Private equity funds tend to seek significant control to implement change and develop the company, typically making 5-15 investments and so operating with a degree of diversification.

Investors usually subscribe during the fund-raising period and are committed from closing. When an existing investor sells its interest to a third-party buyer, that is a secondary transaction; the market for such "used" interests is the secondary market.

Reasons for selling include portfolio realignment, strategy changes, or releasing resources for core activities. The buyer typically assumes all of the seller's unfunded obligations.

A fund is bound by its strategy and mandate, which translate into investment restrictions normally set out in the LPA.

Typical restrictions relate to geography, investment stage and strategy, degree of control sought, industry, direct or indirect investment, and primary or secondary investment.

By making a number of investments, a fund diversifies risk: one investment performing poorly affects overall performance only proportionally, reducing the fund's exposure to any single holding.

A fund with a narrow industry mandate cannot escape that segment's market risk but can offset company-specific risk.

"Tag-along" and "drag-along" rights regulate the conditions of exit from an investment.

A tag-along right lets a shareholder choose to sell alongside another shareholder, normally on the same terms and to the same buyer - often requested by minorities so they can exit when the majority does. A drag-along right lets a selling shareholder require the other shareholder(s) to sell at the same time to the same buyer on certain terms.