Alternative Investments Glossary

1031 Exchange — A tax-deferred swap of one investment property for another under IRC Section 1031, allowing capital gains tax to be postponed when strict deadlines and rules are met.

'40 Act Fund — A fund registered under the Investment Company Act of 1940, the framework behind interval funds, tender offer funds, and other registered vehicles that package alternative strategies.

721 Exchange — A tax-deferred contribution of property to a REIT’s operating partnership in exchange for OP units under IRC Section 721, often the second step after a DST investment.

Accredited Investor — An investor meeting SEC income, net-worth, or professional-credential thresholds that unlock access to most private placements.

Alternative Investment — Any investment outside publicly traded stocks, bonds, and cash — private equity, private credit, real assets, hedge funds, and more.

Appraisal / Independent Valuation Advisor — A third-party firm engaged to value a non-traded fund’s assets, supporting the NAV that sponsors publish.

Asset-Backed Securities (ABS) — Bonds collateralized by pools of loans or receivables — auto loans, equipment leases, consumer credit — whose cash flows pay investors.

Asset-Based Lending (ABL) — Lending secured by specific borrower assets such as inventory, receivables, or equipment rather than general cash flow.

AUM (Assets Under Management) — The total market value of assets a manager oversees; the standard yardstick for manager scale and the base for many fee calculations.

Basis Points (bps) — One hundredth of a percentage point; the standard unit for quoting fees, spreads, and yield differences.

BDC (Business Development Company) — A regulated fund that lends to or invests in middle-market companies, offered in listed, non-traded, and perpetual formats.

Benchmark — The index a fund’s performance is measured against, such as a leveraged-loan or high-yield index for credit funds.

Beneficial Interest — An ownership right to the economic benefits of property held in trust, such as an investor’s stake in a Delaware statutory trust.

Best-Efforts Offering — An offering in which the distributor agrees to sell as many shares as it can without guaranteeing the amount raised — the standard structure for non-traded products.

Blue Sky Laws — State securities laws that govern the registration and sale of offerings within each state, layered on top of federal rules.

Bonus Depreciation — A tax provision allowing an immediate first-year deduction of a large share of qualifying property costs rather than depreciating them over decades.

Boot — Cash or other non-like-kind value received in a 1031 exchange, which is taxable even when the rest of the exchange qualifies for deferral.

Broker-Dealer (BD) — A FINRA-member firm that buys and sells securities for clients or its own account; the primary distribution channel for many alternative products.

Buyout / Leveraged Buyout (LBO) — The acquisition of a company using significant borrowed money, the defining strategy of traditional private equity.

Cap Rate (Capitalization Rate) — A property’s net operating income divided by its value; the shorthand measure of real estate pricing and yield.

Capital Call — A fund’s demand that investors deliver a portion of their committed capital, drawn as investments are made.

Capital Stack — The layered structure of financing behind a deal — senior debt, mezzanine, preferred equity, common equity — ranked by payment priority and risk.

Carried Interest (Carry) — The manager’s share of fund profits, typically paid after investors receive their capital back plus a preferred return. Also called the promote.

Cash-on-Cash Return — Annual pre-tax cash flow divided by cash invested; a simple yield measure widely used in real estate.

Clawback — A provision requiring the general partner to return carried interest it received early if the fund’s final results don’t support it.

Closed-End Fund — A fund with a fixed pool of capital that doesn’t continuously redeem shares; the chassis for interval funds and tender offer funds.

Co-Investment — A direct investment in a single deal made alongside a fund, usually at reduced or no fees.

Commodities — Physical goods such as energy, metals, and agricultural products, accessed by investors through futures, funds, or direct ownership.

Committed vs. Uncalled Capital — The total an investor has pledged to a fund versus the portion not yet drawn through capital calls.

Concentration Limit — A cap — often state-imposed — on how much of an investor’s net worth may be placed in a particular alternative product.

Continuation Fund — A new vehicle a GP forms to keep holding one or more portfolio assets past a fund’s life, giving existing LPs the choice to cash out or roll.

Continuous Offering — An offering that stays open indefinitely, selling shares at a regularly updated price — the standard model for NAV REITs and perpetual BDCs.

Convertible Securities — Notes or preferred shares that can convert into common equity, blending downside protection with upside participation.

Cornerstone Investor — A large, named investor that commits early to an offering, lending credibility that helps attract other buyers.

Cost Segregation — An engineering-based tax study that reclassifies building components into shorter depreciation lives, accelerating deductions for property owners.

Coupon — The stated interest rate a debt instrument pays, expressed as a percentage of face value.

CPACE (Commercial Property Assessed Clean Energy) — Long-term financing for energy and resiliency improvements repaid through a special assessment on the property’s tax bill.

Current Yield / Dividend Yield — Annual income divided by current price; for unlisted products, distinct from the sponsor-set distribution rate.

Custodian / Self-Directed IRA (SDIRA) — An IRA held at a custodian that permits alternative assets — private funds, real estate, notes — inside a tax-advantaged account.

Daily NAV REIT — A non-traded REIT that strikes and publishes its net asset value daily rather than monthly.

Dealer Manager — The broker-dealer, often sponsor-affiliated, that manages the distribution of a non-traded offering to selling firms.

Debt Service Coverage Ratio (DSCR) — Net operating income divided by debt payments; lenders’ core test of whether a property’s cash flow covers its loan.

Declaration, Record & Payment Dates — The three dates that govern a distribution: when it’s declared, who’s entitled to it, and when it’s paid.

Delaware Statutory Trust (DST) — A trust structure that lets multiple investors hold fractional interests in institutional real estate, and the dominant vehicle for passive 1031 exchange investments.

Depreciation Recapture — The tax due on previously claimed depreciation when a property is sold, applied at rates up to 25%.

Direct Lending — Non-bank loans negotiated directly between a fund and a borrower, the largest strategy within private credit.

Direct Participation Program (DPP) — A pooled investment that passes income, gains, losses, and tax benefits directly through to investors, encompassing non-traded REITs, BDCs, and real estate partnerships.

Discount Rate — The rate used to translate future cash flows into present value — a key assumption behind NAV and appraisal figures.

Discounted Cash Flow (DCF) — A valuation method that projects future cash flows and discounts them to today’s dollars.

Distressed Debt — Investing in the debt of troubled companies at deep discounts, seeking recovery through restructuring or turnaround.

Distribution — A payment from a fund to its investors, which may include income, capital gains, or a return of the investor’s own capital.

Distribution Rate — A fund’s annualized distributions as a percentage of its offering price or NAV — not a yield, since it may include return of capital.

Dividend Reinvestment Plan (DRIP) — A program that automatically reinvests distributions into additional shares, often at NAV and without commissions.

DPI (Distributions to Paid-In Capital) — Cumulative cash returned to investors divided by capital contributed; the realized half of a fund’s multiple.

Dry Powder — Committed but uninvested capital available for deployment.

Due Diligence — The investigation of an investment, sponsor, or offering before committing capital — legal, financial, and operational.

EB-5 Visa Program — A federal program granting green-card eligibility to foreign investors whose qualifying U.S. investments create jobs.

Emerging Growth Company (EGC) — A JOBS Act classification giving newer issuers scaled-back disclosure and reporting obligations.

Equity Multiple — Total cash received from a real estate investment divided by cash invested, ignoring the time value of money.

Equity REIT vs. Mortgage REIT — The two REIT models: owning properties and collecting rent versus holding real estate debt and earning interest spreads.

European vs. American Waterfall — Two ways of paying carried interest: after all fund capital is returned (European) or deal by deal (American).

Evergreen Fund — A fund with no fixed end date that continuously raises and invests capital, offering periodic rather than daily liquidity.

Exit Cap Rate — The cap rate assumed at a property’s future sale — a small assumption with an outsized effect on projected returns.

Exit Strategy — The plan for how an investment will ultimately be sold or liquidated and capital returned to investors.

Farmland / Timberland — Income-producing agricultural and forest land, real-asset categories valued for inflation sensitivity and low market correlation.

Feeder Fund / Master-Feeder Structure — A structure in which one or more “feeder” vehicles pool investors and invest in a central master fund, often used to make institutional funds accessible.

Fiduciary Standard — The legal duty to act in a client’s best interest, which governs RIAs and shapes how advisors evaluate alternative products.

FINRA — The self-regulatory organization that oversees broker-dealers, including the firms that distribute non-traded products.

Firm-Commitment Offering — An underwriting in which the bank buys the entire offering and resells it, bearing the risk itself — the opposite of best-efforts.

First Lien / Second Lien — Lien priority in secured lending: first-lien lenders are repaid from collateral before second-lien lenders see anything.

Floating-Rate vs. Fixed-Rate — Whether a loan’s interest resets with a reference rate or stays constant — the key variable in how credit portfolios respond to rate moves.

Form D — The notice filing an issuer submits to the SEC after its first sale in a Regulation D private placement.

Fund of Funds — A fund that invests in other funds rather than directly in assets, trading an extra fee layer for diversification and access.

Gate / Gate Provision — A limit on how much investor capital can exit a fund in a given period; when redemption requests exceed it, requests are cut back pro rata.

General Partner (GP) — The fund’s manager and decision-maker, bearing management responsibility and earning fees and carried interest. Also called the sponsor.

Going Concern — An auditor’s baseline assumption that a company can continue operating; a “going concern” qualification signals substantial doubt.

GP Catch-Up — The waterfall tier in which the GP receives most or all distributions until its carried interest catches up to the agreed split.

GP / LP Structure — The standard private-fund architecture: a general partner manages, limited partners invest, and rights are set by the partnership agreement.

Ground Lease — A long-term lease of land alone, with the tenant owning improvements it builds until the lease ends.

Growth Equity — Minority investments in established, expanding companies — the middle ground between venture capital and buyouts.

Hedge Fund — A privately offered fund pursuing flexible strategies — long/short, arbitrage, macro — typically open only to qualified investors.

High-Water Mark — The rule that a manager earns performance fees only on gains above the fund’s previous peak value.

Hurdle Rate — The return threshold a fund must clear before performance compensation begins to accrue.

Hybrid Security — An instrument combining debt and equity features, such as subordinated notes that rating agencies treat as partial equity.

IBD (Independent Broker-Dealer) — A broker-dealer serving independent-contractor advisors; historically the core distribution channel for non-traded alternatives.

Indenture — The contract governing a bond issue, setting terms, covenants, and the trustee’s duties to bondholders.

Independent / Non-Independent Trustee — Fund board members classified by their ties to the sponsor; regulations require independent voices on key decisions.

Infrastructure — Investments in essential physical systems — transport, energy, digital, utilities — prized for long-duration contracted cash flows.

Initial Public Offering (IPO) — A company’s or fund’s first sale of shares to the public, and one possible liquidity event for non-traded vehicles.

Interval Fund — A registered closed-end fund that offers to repurchase a set percentage of shares at NAV at regular intervals — quarterly for most.

Investment Adviser — The registered firm that manages a fund’s portfolio under an advisory agreement — a distinct role from the financial advisors who recommend the fund.

J-Curve — The typical shape of private fund returns: early negative marks from fees and immature investments, followed by gains as the portfolio matures.

Junior Subordinated Note — Deeply subordinated debt repaid only after senior obligations, often long-dated and deferrable.

Leverage Ratio / Debt-to-Equity — Debt relative to equity, the basic gauge of how much borrowing amplifies a fund’s or company’s returns and risk.

Limited Partner (LP) — A fund’s investor, with liability limited to invested capital and no role in management.

Liquidity — How quickly and easily an investment can be converted to cash — the defining trade-off of most alternative investments.

Litigation Finance — Capital provided to plaintiffs or law firms in exchange for a share of case proceeds, with returns uncorrelated to markets.

Load (Sales Load) — The upfront sales charge on certain fund shares, compensating the distribution chain.

Loan-to-Value (LTV) — Loan amount divided by property value; the core measure of leverage and lender protection in real estate debt.

Lock-Up Period — The initial stretch during which investors cannot redeem from a fund.

Management Fee — The recurring fee — typically a percentage of assets or committed capital — that pays the manager to run the fund.

Management Fee Offset — A provision crediting some or all of the deal fees a GP collects from portfolio companies against the management fee LPs pay.

Maturity — The date a debt instrument’s principal comes due.

Mezzanine Debt — Junior financing between senior debt and equity in the capital stack, carrying higher rates and often equity kickers.

Middle Market — The universe of mid-sized companies — too large for small-business lending, too small for public markets — where much of private credit and PE operates.

MOIC (Multiple on Invested Capital) — Total value created divided by capital invested — the headline multiple for private fund performance. Also reported as TVPI.

Multi-Asset Credit — A strategy that allocates dynamically across credit sectors — loans, bonds, structured credit — within one portfolio.

NAV (Net Asset Value) — A fund’s assets minus liabilities, usually expressed per share; the pricing basis for non-traded products.

Net Lease — A lease shifting some or all property expenses — taxes, insurance, maintenance — from landlord to tenant.

Net Operating Income (NOI) — A property’s income after operating expenses but before debt service and capital costs; the numerator in every cap rate.

Net Proceeds — What an issuer actually receives from an offering after underwriting discounts and expenses.

Non-Accrual — Loan status in which a lender stops recognizing interest income because collection is in doubt — a key credit-quality signal in BDC filings.

Non-Traded REIT — A REIT registered with the SEC but not listed on an exchange, sold through advisors at NAV-based prices with limited, program-based liquidity.

Occupancy Rate — The percentage of a property that is leased — the simplest health indicator in real estate reporting.

Offering Memorandum / PPM — The disclosure document for a private offering, detailing terms, risks, fees, and conflicts. Also called a private placement memorandum.

Operating Partnership (OP) — The partnership through which an UPREIT holds its properties, whose units can be exchanged tax-deferred for property under Section 721.

Opportunity Zone (OZ) — Designated census tracts where qualifying investments earn capital-gains deferral and, if held long enough, tax-free appreciation.

Over-Allotment / Greenshoe — An underwriter’s option to sell additional shares to stabilize an offering.

Paid-In Capital (PIC) — The capital investors have actually contributed to a fund — the denominator of DPI, RVPI, and TVPI.

Par Value — A security’s face value; for debt, the amount repaid at maturity.

Passive Activity Loss (PAL) Rules — Tax rules that generally limit passive losses to offsetting passive income, shaping how real estate losses can actually be used.

Perpetual-Life Fund — A fund designed to operate indefinitely, raising and redeeming shares continuously at NAV rather than winding up on a schedule.

Phantom Income — Taxable income allocated to an investor without matching cash — common with PIK interest, zero-coupon bonds, and partnership allocations.

PIK (Payment-in-Kind) — Interest paid in additional debt or securities rather than cash, preserving borrower liquidity while compounding the obligation.

Placement Agent / Placement Fee — A firm hired to raise capital for a fund or offering, compensated through placement fees.

Preferred Return — The priority return — often 6–8% annually — that LPs receive on their capital before the GP shares in profits.

Preferred Stock / Preferred Equity — Equity with priority over common for distributions and liquidation, sitting between debt and common in the capital stack.

Private Credit — Lending by funds rather than banks — direct lending, mezzanine, distressed, specialty finance — now a multi-trillion-dollar asset class.

Private Equity (PE) — Ownership investments in private companies, spanning buyouts, growth equity, and venture capital.

Private Placement — A securities offering exempt from public registration, sold to a limited universe of qualifying investors.

Private Placement Life Insurance (PPLI) — Institutionally priced variable life insurance whose cash value can hold alternative investments, compounding tax-deferred.

Public Market Equivalent (PME) — A method for comparing a private fund’s returns against what the same cash flows would have earned in a public index.

Qualified Intermediary (QI) — The independent party that holds sale proceeds during a 1031 exchange so the taxpayer never takes receipt — a role required for the exchange to qualify.

Qualified Opportunity Fund (QOF) — The investment vehicle through which capital gains must be deployed to receive Opportunity Zone tax benefits.

Qualified Purchaser — A higher eligibility tier than accredited investor, defined under the Investment Company Act, required for 3(c)(7) private funds.

Real Estate Debt Fund — A fund that originates or buys loans backed by commercial real estate, earning interest rather than property appreciation.

Redemption Program — A non-traded product’s standing offer to buy back limited amounts of shares — typically capped monthly or quarterly — as the primary source of investor liquidity.

Reg BI (Regulation Best Interest) — The SEC standard requiring broker-dealers to act in retail customers’ best interest when recommending securities, raising the bar from suitability.

Regulation A+ / Reg CF — Exemptions allowing smaller public-style offerings — Reg A+ “mini-IPOs” and crowdfunding — with lighter requirements than full registration.

Regulation D (Reg D) — The SEC exemption framework behind most private placements, including Rules 506(b) and 506(c).

Regulation S — The exemption covering securities offered and sold outside the United States.

REIT (Real Estate Investment Trust) — A company that owns or finances income-producing real estate and distributes at least 90% of taxable income to shareholders, avoiding entity-level tax.

Replacement / Relinquished Property — The 1031 exchange pair: the property sold (relinquished) and the property acquired (replacement) within the exchange deadlines.

Return of Capital (ROC) — The portion of a distribution that repays investor capital rather than passing through earnings — tax-deferred when received, but it lowers cost basis.

Reverse 1031 Exchange — A 1031 exchange executed in reverse order: the replacement property is acquired before the relinquished property is sold.

RIA (Registered Investment Advisor) — A firm registered with the SEC or states to give investment advice for compensation, held to a fiduciary standard.

Royalty Financing — Capital provided in exchange for a percentage of future revenue — common in music, pharma, and mining.

RVPI (Residual Value to Paid-In) — The unrealized remainder of a fund’s value relative to contributed capital; DPI plus RVPI equals TVPI.

Sale-Leaseback — A transaction in which a company sells property it owns and leases it back, converting real estate into capital while keeping occupancy.

SBA Lending — Small-business loans partially guaranteed by the U.S. Small Business Administration, an asset class accessed through specialty lenders and funds.

Schedule K-1 — The tax form partnerships use to report each investor’s share of income, losses, and credits — the annual paperwork reality of many alternatives.

SEC (Securities and Exchange Commission) — The federal regulator of securities markets, issuers, funds, and investment advisers.

Secondaries / Secondary Market — The market for buying and selling existing fund interests, including GP-led deals such as continuation funds.

Securities Act of 1933 — The federal law governing securities offerings, requiring registration unless an exemption — like Section 4(a)(2) or Reg D — applies.

Securities Exchange Act of 1934 — The federal law governing securities trading, ongoing reporting, and the SEC itself.

Selling Commission — The portion of an offering’s sales load paid to the selling broker-dealer and its advisors.

Senior Secured Lending — First-priority loans backed by collateral — the most protected position in the capital stack and the core of many BDC portfolios.

Sensitivity Analysis — Disclosure showing how a valuation or NAV changes when key assumptions — cap rates, discount rates — move.

Share Class / Multi-Class Structure — Versions of the same fund with different fees and minimums — Class S, D, I, and T in most NAV products — reflecting how they’re sold.

Shareholder Servicing Fee — An ongoing annual fee on certain share classes that compensates distributors for account service — a trailing cost that compounds over time.

Shares Outstanding — The total shares currently issued and held by investors.

Shelf Registration / Form S-3 — A registration allowing an issuer to sell securities in tranches over time without a new filing for each sale.

Side Pocket — A segregated account holding a fund’s illiquid or hard-to-value positions, walled off from normal redemptions.

Single-Family Rental (SFR) — Houses owned as income property, now an institutional asset class accessed through funds and REITs.

Special Purpose Vehicle (SPV) — A legal entity created for one deal or asset, isolating its risks and cash flows from everything else.

Stablecoin — A digital token designed to hold a fixed value, typically $1, increasingly used for settlement in tokenized fund transactions.

Stepped-Up Basis — The reset of an inherited asset’s cost basis to its value at death, which can permanently eliminate deferred gains — the endgame of many 1031 strategies.

Structured Notes — Bank-issued securities whose payoff is linked to an underlying asset or index, packaging market exposure with defined outcomes.

Subscription Agreement — The contract through which an investor applies to purchase interests in an offering and makes the required representations.

Subscription Line / Capital Call Facility — A fund credit line secured by LP commitments, used to bridge capital calls — and known to flatter early IRR figures.

Suitability — The traditional obligation that a recommended investment fit the client’s profile — now largely superseded for retail recommendations by Reg BI.

Swap Till You Drop — The informal name for serial 1031 exchanging until death, when stepped-up basis can erase the deferred gains entirely.

Tenant-in-Common (TIC) — Direct fractional co-ownership of real estate by up to 35 investors, the 1031-eligible predecessor to today’s DSTs.

Tender Offer — A formal offer to buy back shares from investors — the liquidity mechanism of tender offer funds and a periodic event for non-traded products.

Tender Offer Fund — A registered closed-end fund that provides liquidity through discretionary tender offers rather than a committed repurchase schedule.

Tokenization — Issuing ownership of real-world assets — funds, real estate, credit — as digital tokens on a blockchain, aiming at faster settlement and broader access.

Tranche — One slice of a structured deal or loan, with its own priority, rate, and risk.

Transaction Price — The monthly NAV-based price at which a perpetual fund sells and repurchases its shares.

Triple Net Lease (NNN) — A lease under which the tenant pays taxes, insurance, and maintenance on top of rent, leaving the landlord with largely passive income.

Two and Twenty (2/20) — The classic private-fund fee model: a 2% management fee plus 20% of profits.

UBTI (Unrelated Business Taxable Income) — Income that can trigger taxes inside IRAs and other exempt accounts — a frequent surprise with leveraged or operating alternatives.

Underwriting Discount — The spread between what underwriters pay an issuer and the offering price — their compensation.

Unitranche — A single loan blending senior and junior debt into one facility with one blended rate.

UPREIT — A REIT that holds its assets through an operating partnership, enabling property owners to contribute assets tax-deferred for OP units.

Venture Capital (VC) — Equity investment in early-stage companies with high growth potential — and high failure rates.

Vintage Year — The year a fund makes its first investment, the standard cohort for comparing fund performance.

Waterfall — The ordered rules for splitting fund distributions between LPs and the GP — return of capital, preferred return, catch-up, then carry.

Weighted-Average Lease Term (WALT) — The average remaining lease length across a portfolio, weighted by rent — the measure of income durability.

Wind-Down — The orderly liquidation of a fund or REIT: selling assets, settling obligations, and returning remaining capital to investors.

Wirehouse — One of the large national full-service brokerage firms, a distinct distribution channel from IBDs and RIAs.

Zero-Coupon Bond — A bond sold at a discount that pays no interest until maturity — generating phantom income along the way.

This glossary is provided for educational purposes only and does not constitute investment, tax, or legal advice. Consult qualified professionals regarding your specific circumstances.