Glossary

In Canada, an individual with $1M+ in net financial assets, $200K+ individual income ($300K joint), or $5M+ in net assets. Defined under NI 45-106, this status grants access to exempt market securities not available to retail investors.

The percentage of a total portfolio dedicated to a specific asset class or strategy. Institutional investors typically allocate 15–30% to alternatives, while Canadian HNW investors are still building toward those levels.

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 calculated as Net Operating Income divided by property value. A lower cap rate indicates lower risk and higher price; a higher cap rate suggests higher yield and risk.

A demand by a fund manager for a portion of an investor's committed capital. Occurs when the fund identifies an investment opportunity, and investors are legally obligated to fund the call per their subscription agreement.

The portion of a capital gain subject to tax in Canada. As of 2024, individuals pay tax on 50% of capital gains up to $250K annually, with amounts above that threshold taxed at a 66.67% inclusion rate.

The share of profits — typically 20% — that a fund manager receives above a preferred return threshold. Carried interest aligns manager incentives with investor performance and is the primary way GPs earn upside.

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 real estate investment strategy, targeting stabilized, fully leased, high-quality properties in prime locations. Core assets generate steady income with minimal value-add opportunity.

A real estate strategy one step above core, targeting quality properties that may benefit from modest operational improvements, light renovations, or lease-up to increase returns.

A statistical measure of how two assets move in relation to each other. Alternatives are valued for their low correlation to public equities and bonds, providing portfolio diversification benefits.

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 pipeline of investment opportunities available to a fund manager. Strong deal flow — driven by proprietary relationships and sourcing networks — is a key differentiator among private market managers.

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.

Under NI 45-106, an investor who has net financial assets exceeding $400K or net income before taxes exceeding $75K in the two most recent years. A lower threshold than Accredited Investor, available only in certain provinces.

The segment of Canada's capital markets where securities are sold under prospectus exemptions rather than through a public offering. Access typically requires accredited investor status or purchase through an EMD.

A registered dealer in Canada authorized to trade in securities under prospectus exemptions. EMDs are the primary distribution channel for alternative investments and must be registered with provincial securities regulators.

A loan that holds the senior-most claim on a borrower's assets in the event of default. First lien lenders are repaid before all other creditors, making this the lowest-risk position in private credit.

A Canadian tax structure allowing resource companies to pass eligible exploration and development expenses to shareholders as tax deductions. Commonly used in mining and oil & gas investments.

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 entity that manages a limited partnership fund, making investment decisions, managing portfolio companies, and handling fund operations. The GP bears unlimited liability and earns management fees and carried interest.

The amount of capital the General Partner invests in their own fund, typically 1–5% of total fund size. A meaningful GP commitment signals alignment of interest between the manager and investors.

Gross returns reflect performance before fees, expenses, and carried interest are deducted. Net returns are what investors actually receive. The gap between gross and net can be 3–5% annually in alternatives.

The minimum annual return — typically 6–8% — that LPs must receive before the GP earns any carried interest. Acts as a performance floor to protect investors and align manager incentives.

The additional return investors expect to earn for holding assets that cannot be easily sold or redeemed. Private market investments are illiquid by nature, and this premium is a core argument for alternatives allocation.

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 typical pattern of private equity fund returns — negative in early years due to management fees and slow capital deployment, before turning positive as portfolio investments mature and generate realized gains.

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 fund who contributes capital but does not participate in day-to-day management. LPs have limited liability — their risk is capped at their committed capital amount.

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 charged by a fund manager, typically 1.5–2.5% of committed capital during the investment period and often stepping down to a percentage of invested capital thereafter.

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 total value returned to investors divided by the total capital invested. A MOIC of 2.0x means the investment doubled. Unlike IRR, MOIC does not account for the time value of money.

The total value of a fund's assets minus its liabilities, typically reported quarterly. NAV per unit represents the current estimated value of each investor's holding in the fund.

National Instrument 45-106, the Canadian securities regulation that defines prospectus exemptions — including the Accredited Investor, Offering Memorandum, and Minimum Amount exemptions — governing how exempt market securities can be sold.

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.

The primary disclosure document for exempt market securities in Canada. The OM describes the investment opportunity, risks, fees, terms, and the rights of investors. Required under the OM exemption in NI 45-106.

A fund structure that allows ongoing subscriptions and periodic redemptions, often quarterly with notice requirements. Common in real estate and private credit funds seeking to provide relative liquidity.

The highest-risk/highest-return real estate strategy, targeting distressed assets, ground-up development, or significant repositioning. Returns are driven primarily by capital appreciation rather than income.

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.

Non-bank lending to companies or projects, including direct lending, mezzanine, distressed debt, and specialty finance. One of the fastest-growing alternative asset classes globally and in Canada.

Equity investments in companies not listed on a public stock exchange. Includes buyouts, growth equity, and venture capital. Investors commit capital to a fund managed by a GP who acquires and improves portfolio companies.

A US regulatory classification for investors with $5M+ in investments. In Canada, the equivalent threshold is the Accredited Investor definition under NI 45-106, though the criteria differ.

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 vehicle that owns and operates income-producing real estate. In Canada, REITs can be publicly traded on the TSX or structured as private vehicles. They must distribute a high percentage of taxable income to unitholders.

An investment that qualifies to be held within a Registered Retirement Savings Plan in Canada. Many alternative investments are not RRSP-eligible, though some MICs, certain LP units, and specific fund structures do qualify.

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 holds the highest priority claim on a borrower's assets. Senior lenders are repaid first in the event of default or restructuring, making senior debt the lowest-risk tranche in the capital stack.

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 the interest rate charged on a loan and a reference rate (such as the Bank of Canada overnight rate or SOFR). Spread is a key measure of the risk premium in private credit.

The legal document an investor signs to commit capital to a private fund. It outlines the commitment amount, representations, and warranties and constitutes a binding obligation to fund capital calls.

The Canadian tax slip issued to partners in a limited partnership, reporting their allocated share of income, losses, and other tax attributes. LPs in private funds receive a T5013 annually for tax filing.

A non-binding document outlining the key terms of a proposed investment — including valuation, governance, liquidation preferences, and anti-dilution rights. Standard in venture capital and private equity transactions.

An investment that qualifies to be held in a Tax-Free Savings Account in Canada. Gains and income within a TFSA are completely tax-free. Some alternative investments qualify, but many private fund structures do not.

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 startup company valued at $1 billion or more. Canada's tech ecosystem has produced several unicorns, particularly in fintech, AI, and SaaS sectors.

A real estate strategy targeting properties that require significant improvements — such as renovations, re-tenanting, or operational upgrades — to increase value and income. Higher risk and return than core strategies.

A subset of private equity focused on early-stage and high-growth companies. VC funds invest in exchange for equity and often take board seats, providing strategic guidance alongside capital.

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.