Concepts – Section Index
What This Section Covers
These files explain the underlying mechanics common to most alternative fund structures — the building blocks that fund structures, operations, and metrics all depend on. If a term appears across multiple sections without explanation, it is likely defined here.
Files in This Section
| File | Concept |
|---|---|
| Illiquidity Premium | Why investors accept locked-up capital |
| Diversification | How alternatives reduce portfolio-level risk |
| Capital Commitments | The commitment–drawdown–distribution cycle |
| Drawdowns and Distributions | How capital enters and exits a fund |
| J-Curve | The early negative / later positive return pattern |
| Vintage Year | Why fund vintage matters for comparison |
| NAV | How fund value is measured |
| Carried Interest | The GP performance fee structure |
| Waterfalls | The sequence for distributing profits |
| Recycling Provisions | Reinvesting exit proceeds within a fund |
| Equalisation | Adjusting economics for late-close investors |
| Key-Person Provisions | LP rights when named investment personnel depart |
| Overcommitment Strategy | Committing beyond liquid assets; distribution timing risk |
| Debt Service Coverage Ratio | Measuring a borrower’s ability to service debt from cash flow |
| NAV Facilities | Fund-level credit secured against portfolio NAV |
| Clawback | GP obligation to return carry if total fund performance falls short |
| Responsible Investment | ESG integration in alternatives — due diligence, reporting, regulatory context |
Suggested Reading Order
- Illiquidity Premium — the foundational rationale for alternatives
- Capital Commitments — how capital is pledged and drawn
- Drawdowns and Distributions — the mechanics of capital flow
- J-Curve — why early fund performance looks negative
- NAV — how fund value is estimated at any point in time
- Carried Interest — the GP incentive structure
- Waterfalls — the sequence that determines when carry is paid
- Recycling Provisions — how exits can feed reinvestment
- Equalisation — handling investors who join after first close
- Diversification and Vintage Year — portfolio-level perspective
Most Important Links
- J-Curve — essential for understanding early fund metrics and LP planning
- Waterfalls — defines how European and American carry differ; contains verified arithmetic
- NAV — everything else is measured against this number
- Carried Interest — explains the core GP incentive mechanism
Self-Check Questions
- Why does the J-curve deepen when a subscription line facility is used?
- What is the difference between a European waterfall and an American waterfall?
- How does recycling affect an LP’s DPI mid-fund?
- What is equalisation interest and why is it charged to late-close LPs?
- Why might two funds have the same NAV per unit but very different risk profiles?
Related Sections
- Fund Structures — structures implement these concepts in legal form
- Metrics — IRR, TVPI, and DPI are calculated on the flows defined here
- Operations — capital calls, distributions, and NAV production execute these mechanics