Glossary

A category of investor defined in section 1.1 of National Instrument 45-106. Each paragraph of the definition sets a test; for individuals these include tests of income, financial assets and net assets. Securities can be sold without a prospectus to an investor who meets one, under the accredited investor exemption. The paragraphs are quoted word for word, with their source, in the investor categories walkthrough on this site.

The share of a portfolio held in a particular asset class or strategy. Allocation frameworks set it from an investor's horizon, liquidity needs and total wealth, and size illiquid holdings to capital that will not be needed for the life of the investment.

The excess return generated by a fund or strategy above its benchmark. In private markets, alpha is often attributed to manager skill in deal sourcing, operational improvement, or timing.

A fund that raises capital before specific investments have been identified. Investors commit based on the manager's strategy, track record, and mandate rather than a defined set of assets.

A short-term loan used to bridge a gap in financing, typically for 6–24 months. Common in real estate and private credit, often at higher interest rates than conventional mortgages.

A real estate valuation metric: net operating income divided by property value. A lower cap rate means a higher price for each dollar of income. Cap rates reflect interest rates, expected income growth and risk together, so a low cap rate on its own does not mean low risk.

A notice from a fund's general partner asking limited partners to pay in part of their commitment, to fund an investment or to pay fees and expenses. Limited partners are obliged to meet it under the fund's agreements.

The share of a capital gain that is included in taxable income in Canada. As at October 2026 it is one-half. A proposed increase to two-thirds on gains above $250,000 a year for individuals was cancelled in March 2025.

The share of a fund's profits, commonly 20%, that the general partner receives once limited partners have received their capital and any preferred return. The general partner shares in gains but not in losses on the same terms, which is why diligence practice reads how carry is calculated and when it is paid.

A clause allowing the GP to receive a higher share of profits for a period after the preferred return is met, until they have received their full carried interest percentage on all profits earned to that point.

A contractual provision requiring the GP to return previously distributed carried interest if, at fund liquidation, they have received more than their entitled share of overall profits.

A fund structure with a fixed term (typically 7–12 years), a defined fundraising period, and no ongoing redemptions. Most private equity and venture capital funds use this structure.

An opportunity for LPs to invest directly alongside the fund in a specific deal, typically with reduced or no management fees and carry. Co-investments increase exposure to individual transactions.

The window during which a fund manager can call capital from investors for new investments, usually the first 3–5 years of a fund's life. After this period, capital calls are limited to follow-on investments and fees.

The lowest-risk end of the real estate strategy spectrum: stabilized, largely leased properties of good quality, held mainly for income, with little improvement work planned. Income and values can still fall, for example when rents weaken or interest rates rise.

A real estate strategy one step beyond core: good-quality properties with modest improvement, light renovation or some leasing to do. It carries more leverage and leasing risk than core, and its income and value can fall when the plan or the market goes the wrong way.

A statistical measure of how closely two assets' returns move together. Allocation frameworks have used alternatives partly for their low measured correlation with stocks and bonds. Part of that low figure reflects appraisal-based valuations, which smooth reported values.

A contractual clause in a loan agreement that imposes conditions on the borrower — such as maintaining certain financial ratios or limiting additional debt. Covenants protect lenders and are a key feature of private credit.

The umbrella organization of Canada's provincial and territorial securities regulators. The CSA coordinates regulation across jurisdictions and publishes national instruments like NI 45-106.

The investment opportunities available to a fund manager. Diligence practice asks how a manager finds them and how many it reviews for each one it makes, because sourcing and selection together shape a fund's portfolio.

The percentage of loans in a portfolio that have failed to meet their payment obligations. In private credit, default rates vary by strategy and vintage, and are a primary risk metric for lenders.

The reduction in an existing shareholder's ownership percentage when new shares are issued in a subsequent financing round. Anti-dilution provisions in term sheets can protect early investors.

Cash or securities returned to investors from a fund. Distributions can come from income (interest, dividends), realized gains on asset sales, or return of capital.

The contractual sequence that governs how a fund's profits are distributed between LPs and the GP. A typical waterfall flows through return of capital, preferred return, GP catch-up, and then carried interest split.

The peak-to-trough decline in the value of an investment or portfolio. In private markets, drawdown also refers to the process of calling committed capital from investors over time.

Committed but uncalled capital available for a fund to deploy into new investments. High levels of dry powder across the industry can increase competition for deals and push valuations higher.

The comprehensive investigation and analysis process conducted before making an investment. For alternatives, this includes reviewing the OM, financial models, legal structures, manager track record, and operational capabilities.

A category of investor defined in section 1.1 of National Instrument 45-106. It is used mainly with the offering memorandum exemption, where in some provinces it affects how much an individual may invest. Its tests are quoted word for word, with their source, in the investor categories walkthrough on this site.

The part of Canada's capital markets in which securities are sold under exemptions from the prospectus requirement, mostly those in National Instrument 45-106, instead of under a prospectus. Each exemption sets its own conditions, such as an investor category or the delivery of an offering memorandum. Exempt securities are sold by issuers directly, by exempt market dealers, and by investment dealers and portfolio managers.

A dealer registered in the exempt market dealer category under National Instrument 31-103. An EMD may trade securities sold under prospectus exemptions, and has know-your-client and know-your-product obligations to its clients. It is one of several routes by which exempt securities reach investors, alongside issuers selling directly, investment dealers and portfolio managers.

A loan with the first-ranking security over a borrower's assets. On default, first-lien lenders are repaid from the secured assets ahead of other secured lenders, subject to claims the law ranks ahead of them, such as some court-approved financing and certain government claims. It is the most senior position in the capital stack; it still carries credit risk.

A Canadian structure that lets a resource company renounce eligible exploration and development expenses to the investors who buy its shares, who deduct them. It is used mainly in mining; flow-through treatment for oil, gas and coal activity ended for agreements made after March 31, 2023.

An investment vehicle that allocates capital across multiple underlying funds rather than investing directly. Provides diversification across managers, vintages, and strategies but adds a second layer of fees.

The partner that manages a limited partnership and is liable for its obligations. In private funds the general partner is commonly a corporation controlled by the manager, which limits the liability of the people behind it. Under the limited partnership agreement it, or an affiliated manager, makes the investment decisions and earns management fees and carried interest.

The capital the general partner invests in its own fund, commonly 1–5% of the fund. Diligence practice looks at its size relative to the principals' wealth, because a commitment that matters to them ties their outcome to the limited partners'.

Gross returns are measured before fees, expenses and carried interest; net returns are what investors receive after them. In private funds the gap depends on the fee terms and on the size of the return, which is why diligence practice asks for net figures.

The return, commonly around 8% a year, that limited partners must reach before the general partner earns carried interest. It sets the order in which distributions are paid. It is not a guaranteed or minimum return, and it does not protect against loss.

The additional return investors expect for holding assets that cannot easily be sold. It is a common argument for holding private assets. Its size after fees is debated, partly because appraisal-based values smooth reported returns.

The annualized rate of return that makes the net present value of all cash flows equal to zero. IRR is the standard performance metric for private market funds, capturing both the magnitude and timing of returns.

The pattern in which a private fund's reported returns are commonly negative in its early years, as fees are paid and capital is still being invested, and may turn positive later if investments gain value and are sold. Some funds never recover their early losses.

A provision in a fund agreement that allows investors to suspend or terminate the fund's investment period if designated key individuals leave or are no longer actively involved in management.

Regulatory requirements mandating that dealers and advisors collect and verify information about their clients' financial situation, investment knowledge, and risk tolerance before recommending securities.

An investor in a limited partnership. A limited partner contributes capital and takes no part in management. Its liability is generally limited to its investment, a protection that can be lost by taking part in control of the business.

The governing legal document of a limited partnership fund that defines the terms between LPs and the GP — including fees, carry, investment mandate, governance rights, and distribution waterfall.

The ratio of a loan amount to the appraised value of the underlying asset, expressed as a percentage. A lower LTV means more equity cushion and lower risk for the lender. Common benchmark in real estate and private credit.

The annual fee a fund manager charges for running the fund. In closed-end private funds it is commonly about 2% of committed capital during the investment period, often stepping down to a percentage of invested capital later. Open-end and evergreen vehicles commonly charge it on net asset value.

A subordinated loan that sits between senior debt and equity in the capital structure. Mezzanine debt carries higher interest rates than first lien loans and may include equity conversion features like warrants.

A Canadian investment vehicle that pools investor capital to fund mortgages. MICs provide flow-through tax treatment — income is taxed at the investor's marginal rate — and are specific to Canadian markets.

The value of an investment, realized and unrealized together, divided by the capital invested. A MOIC of 2.0x means the value is twice the capital put in. Unlike IRR, it takes no account of how long that took.

The value of a fund's assets minus its liabilities, commonly reported quarterly in private funds. NAV per unit is the estimated value of one unit; in private funds it rests largely on appraisals and valuation models rather than market prices.

National Instrument 45-106 Prospectus Exemptions, the Canadian rule that sets out the exemptions under which securities can be sold without a prospectus, among them the accredited investor, offering memorandum and minimum amount exemptions. Each has its own conditions; individuals cannot use the minimum amount exemption.

A real estate metric calculated as gross rental income minus operating expenses, excluding debt service, capital expenditures, and depreciation. NOI is the numerator in the cap rate formula.

A disclosure document in a prescribed form that an issuer delivers to use the offering memorandum exemption in National Instrument 45-106. It describes the business, the use of funds, the securities, the risks, the fees and the investor's rights, including a right to cancel within two business days. Offerings under other exemptions may have no OM.

A fund structure that accepts ongoing subscriptions and offers periodic redemptions, commonly monthly or quarterly with notice. Common in private real estate and private credit. Redemptions can be limited, gated or suspended when requests exceed the cash available.

The highest-risk end of the real estate strategy spectrum: distressed assets, ground-up development or major repositioning. The result depends mainly on the value at sale rather than on income, and the range of outcomes, including losses, is the widest of the strategies.

Ontario's provincial securities regulator and the largest in Canada. The OSC oversees capital markets activity in Ontario and plays a leading role in shaping national securities policy through the CSA.

A Latin term meaning 'on equal footing.' In private credit, pari passu indicates that two or more lenders share the same priority of claim on a borrower's assets in the event of default.

An interest payment structure where the borrower pays interest by issuing additional debt rather than cash. PIK interest accrues and compounds, increasing the lender's total claim but deferring cash flow.

A benchmarking method that compares private fund returns to what an investor would have earned by investing the same cash flows into a public market index. Used to assess whether illiquidity was rewarded.

The estimated value of a company immediately before a new round of financing. Post-money valuation equals pre-money plus the new investment amount. A key negotiation point in venture capital term sheets.

Lending to companies or projects by lenders other than banks, including direct lending, mezzanine, distressed debt, real estate lending and specialty finance. The lender earns interest and fees and bears the risk that the borrower does not repay.

Equity investments in companies not listed on a public stock exchange, including buyouts, growth equity and venture capital. Investors commonly commit capital to a fund managed by a general partner, which buys companies, works to change their operations or capital structure, and later sells them.

A US classification under the Investment Company Act of 1940, used for investors in certain private funds. It is a separate test from the US accredited investor definition. Neither is a Canadian category; Canadian investor categories are set by National Instrument 45-106.

A distribution that the GP has the right to call back from LPs if needed for follow-on investments, fund expenses, or other obligations specified in the LPA.

A trust that owns and operates income-producing real estate. In Canada, REITs can be listed on an exchange or held privately. A Canadian REIT commonly distributes its taxable income to unitholders, so that the trust itself pays little or no tax.

Describes an investment that is a qualified investment for a Registered Retirement Savings Plan. Securities listed on a designated stock exchange generally are. Units of an unlisted limited partnership are not. Shares of some MICs and some private corporations can be, subject to the prohibited-investment rules. A non-qualified investment held in a plan attracts a tax.

The market for buying and selling existing positions in private funds. Secondaries allow LPs to exit illiquid positions before fund maturity, though typically at a discount to NAV.

Debt that ranks ahead of junior debt and equity in a borrower's capital structure. Senior lenders are paid before junior creditors on a default or restructuring, subject to secured claims and claims the law ranks ahead of them. It is the most senior tranche; it still carries credit risk.

Successive rounds of venture capital financing as a company grows. Series A typically funds product-market fit, Series B funds scaling, and Series C funds expansion or pre-IPO growth.

A separate agreement between the GP and a specific LP granting preferential terms — such as reduced fees, co-investment rights, or enhanced reporting — not available to other investors in the fund.

A legal entity created for a specific transaction or investment, isolating its assets and liabilities from the parent entity. SPVs are commonly used to structure individual deals or co-investments.

The difference between a loan's interest rate and its reference rate. In Canada, floating-rate loans commonly reference CORRA or a lender's prime rate; in the US, SOFR. The spread is the lender's compensation, above the reference rate, for credit risk and costs.

The legal document an investor signs to buy securities in a private offering. It sets out the amount, the investor's representations, including any about investor category, and the terms of the purchase. In a fund that draws capital over time, it also binds the investor to meet capital calls.

The Canadian tax slip, the Statement of Partnership Income, that reports a partner's share of a partnership's income, losses and other tax amounts. Investors in funds structured as limited partnerships commonly receive one each year; investors in trusts receive a T3 instead.

A document setting out the key terms of a proposed investment, such as valuation, governance, liquidation preferences and anti-dilution rights. Most of its terms are not binding, though clauses such as confidentiality and exclusivity commonly are.

Describes an investment that is a qualified investment for a Tax-Free Savings Account. The rules follow the same lines as for an RRSP: units of an unlisted limited partnership are not qualified. Income and gains earned in a TFSA are generally not taxed in Canada, though foreign withholding tax can apply.

A return calculation that eliminates the impact of cash flow timing, measuring pure investment performance. Useful for comparing managers, though IRR is more common in private markets where cash flow timing matters.

A privately held start-up valued at US$1 billion or more in a financing round. The valuation is set by the terms of that round, and can be revised down later.

A real estate strategy that buys properties needing material improvement, such as renovation, re-leasing or better operations, to raise income and value. It carries more execution and leasing risk than core, and more of the result depends on the business plan succeeding.

A subset of private equity that invests in early-stage and fast-growing companies in exchange for equity, usually preferred shares. Venture funds often take board seats, which gives them a say in the company's major decisions.

The year a private market fund makes its first investment or closes its initial fundraise. Used to compare fund performance across similar economic environments and deployment cycles.

The income generated by an investment expressed as a percentage of its value. In private credit and real estate, yield is often the primary return driver, distinct from capital appreciation.