The Club Deal & Private Equity Glossary

Decode the deal.
Private markets run on specific terminology. This isn’t a standard finance dictionary—it’s a practical guide to the terms that actually impact your economics, rights, and risks in a club deal or co-investment.

The Glossary

Definition
1. Allocation Rights The “First Refusal” Ticket What it is: A negotiated right to receive a specific share (or dollar amount) of future deal flow from a Sponsor. Why it matters: In a hot market, the best club deals are oversubscribed. Without this right, you might only see the “leftover” deals that others passed on. Definition: Contractual priority granted to a strategic investor to participate in future co-investments or club deals, typically up to a defined percentage or ticket size. The Norm: Often granted to “Anchor Investors” who commit early capital or back the Sponsor’s overhead.
2. Capital Call (Drawdown) The “Check Request” What it is: A formal notice from the SPV manager requiring you to wire your committed funds. Why it matters: In club deals, these timelines are often tight (5-10 days) because the deal closing depends on it. Missing a call can result in severe penalties (see Default). Definition: The legal demand for an investor to pay a portion of their committed capital to the investment vehicle to fund a transaction or expenses. The Norm: Usually sent 10 business days before funding is needed, accompanied by a detailed calculation of your share.
3. Catch-Up (Sponsor Catch-Up) The “Sponsor’s Accelerator” What it is: A step in the payout waterfall where the Sponsor gets paid quickly after you get your Hurdle Rate. Why it matters: It determines how fast the Sponsor “catches up” to their profit share. A “100% Catch-up” is aggressive; it means they get every dollar of profit after the hurdle until they reach their 20% carry. Definition: A distribution mechanism allowing the Sponsor to receive a accelerated share of profits until their total return equals the agreed carry percentage of total profits. The Norm: 80-100% catch-ups are common in PE; Real Estate sometimes sees 50% (friendlier to LPs).
4. Club Deal The “Group Buy” What it is: A transaction where a small group of investors pools capital to acquire a single asset, rather than investing in a blind fund. Why it matters: You know exactly what you are buying (Asset A), unlike a fund where you buy a “strategy.” You get more control but take on single-asset risk. Definition: A syndicated investment vehicle formed by a group of investors to acquire a controlling or significant interest in a specific target company or asset. The Norm: Typically involves 3-10 active investors and a Sponsor/Lead who arranges the terms.
5. Co-Investment The “Sidecar” Deal What it is: Investing directly into a specific company alongside a main Private Equity fund. Why it matters: The “Holy Grail” for LPs because it usually offers reduced fees (often “No Fee / No Carry”) compared to the main fund to blend down the total cost. Definition: A direct minority investment made by an LP alongside a General Partner’s main fund in a specific portfolio company. The Norm: Often offered to large LPs as a sweetener for committing to the main blind-pool fund.
6. Dead Deal Costs (Broken Deal Expenses) The “Sunk Cost” Risk What it is: The bills (lawyers, accountants, consultants) left over if a deal falls apart before closing. Why it matters: In a Deal-by-Deal model, if the deal dies, who pays? The Sponsor? Or the investors who “circled” the deal? Definition: Third-party expenses incurred during the due diligence and negotiation of a potential transaction that fails to close. The Norm: Investors should demand a “Cap” on their liability for these costs if they haven’t formally closed the SPV yet.
7. Deal-by-Deal (Independent Sponsor) The “Gun for Hire” Model What it is: A Sponsor who doesn’t have a committed fund but raises capital separately for each acquisition. Why it matters: They are hungrier (they only get paid if deals close) but carry more execution risk (capital might not show up). Definition: An investment model where capital is raised and structured for one specific transaction at a time, rather than from a committed blind pool. The Norm: Higher Promote (often 20-25%) to compensate for the lack of steady management fees.
8. Deal Fee / Transaction Fee The “Closing Bonus” What it is: A one-time cash fee paid to the Sponsor at the moment the deal closes (e.g., 1-2% of deal value). Why it matters: It’s an immediate cash-out for the Sponsor, regardless of how the investment performs later. It increases your entry valuation. Definition: An upfront fee charged by the Sponsor or arranger for sourcing, structuring, and closing the investment transaction. The Norm: 1% to 2% of the total transaction value (Enterprise Value).
9. Governance Rights The “Seat at the Table” What it is: Your legal power to influence the company—Board seats, veto rights on debt, or approval for selling the asset. Why it matters: In a fund, you have zero say. In a Club Deal, major investors often demand these rights to protect their capital. Definition: Contractual rights granting investors oversight or decision-making authority over key operational or financial actions of the SPV or portfolio company. The Norm: “Major Decisions” (selling the company, taking big debt) usually require approval from a Supermajority of investors.
10. Gross IRR vs. Net IRR The “Real” Return What it is: Gross is the property’s return; Net is your return after the Sponsor takes their fees and cut. Why it matters: A Sponsor might brag about a “25% Gross IRR” track record, but if their fees are heavy, your Net might only be 15%. Definition: Gross IRR calculates returns at the asset level; Net IRR calculates returns at the investor level after deducting all management fees, expenses, and carried interest. The Norm: Always base your decision on Net returns.
11. Hurdle Rate (Preferred Return) The “First Dibs” on Profit What it is: The minimum annual return (e.g., 8%) you must receive before the Sponsor gets a single dollar of profit share. Why it matters: It protects you. It ensures the Sponsor only shares in the “upside,” not the baseline return. Definition: A threshold rate of return that must be distributed to limited partners before the general partner is entitled to receive any performance fees or carried interest. The Norm: Typically 8% compounding annually for PE/Real Estate; sometimes lower (6-7%) for Core Infrastructure.
12. IC Memo (Investment Committee Memo) The “Thesis” What it is: The detailed 20-50 page document analyzing the deal’s merits, risks, financial model, and market. Why it matters: This is the “homework.” You should never invest based on a teaser deck. The IC Memo is what the Sponsor’s own internal team uses to approve the deal. Definition: A comprehensive internal document presenting the investment thesis, due diligence findings, and risk analysis to obtain formal approval for a transaction. The Norm: In Club Deals, professional Sponsors share a redacted version of this with prospective LPs to prove their diligence.
13. Key Man / Key Person Clause The “Bus Factor” Protection What it is: A clause that pauses the deal or lets you exit if the main dealmaker (the “Key Person”) quits, dies, or is fired. Why it matters: You are betting on the jockey, not just the horse. If the jockey leaves, you need a way out or a say in who takes over. Definition: A contractual provision that triggers a suspension of the investment period or a governance vote if specified principal members of the Sponsor team depart. The Norm: Standard in funds; less common in single-asset SPVs but critical if the asset requires active turnaround.
14. LP (Limited Partner) The “Silent” Investor What it is: The legal status of most passive investors. You put up the money, but have limited liability (can’t lose more than you invest). Why it matters: To keep this protection, you strictly cannot be involved in day-to-day management. Definition: An investor in a partnership who provides capital and has liability limited to their investment, without authority to manage the partnership’s daily operations. The Norm: Standard structure for Family Offices and HNWIs in private vehicles.
15. Management Fee The “Rent” What it is: An annual fee (e.g., 2% of capital) paid to the Sponsor to cover their office, salaries, and operations. Why it matters: In a Club Deal, this should be lower than a fund because they aren’t “searching” for deals—they found this one already. Definition: A recurring periodic fee paid by the fund or SPV to the manager for operational and administrative services, typically calculated as a percentage of committed or invested capital. The Norm: 1.0% to 2.0% per year; often drops after the asset is sold or stabilized.
16. MOIC (Multiple on Invested Capital) The “Cash Multiplier” What it is: A simple score: “How many times my money did I get back?” (e.g., 2.0x means you doubled your money). Why it matters: Unlike IRR, MOIC doesn’t care about time. A 2.0x return in 10 years is a terrible IRR but a great MOIC. You need both metrics. Definition: A performance metric calculating the ratio of total cash returned plus remaining value divided by the total capital invested. The Norm: PE targets 2.0x – 3.0x; Real Estate might target 1.5x – 2.0x depending on risk.
17. Pari Passu The “Fair Shake” What it is: Fancy Latin for “on equal footing.” Why it matters: It means you get paid at the same time and rate as the big guys. No one cuts in line ahead of you in the payout waterfall. Definition: A legal term indicating that two or more assets, securities, or investors are managed without preference, sharing rights and payouts pro-rata. The Norm: Essential for minority investors to ensure they aren’t subordinated to the Sponsor’s friends or insiders.
18. Pledge Fund The “Soft” Commitment What it is: A hybrid structure. You commit to a “fund” concept, but you have the right to say “No” to every specific deal presented. Why it matters: Best of both worlds: you get deal flow like a fund LP, but retain the discretion of a direct investor. Definition: An investment vehicle where investors provide a soft commitment of capital but retain the discretion to opt-in or opt-out of each individual portfolio investment. The Norm: Popular with Family Offices who want to outsource sourcing but keep final approval.
19. Preferred Equity The “Safety” Layer What it is: A class of shares that gets paid back first (like debt) but has higher upside (like equity). Why it matters: It offers downside protection. If the deal goes bad, “Pref” holders get their money out before the Common Equity holders get a dime. Definition: A class of ownership with a higher claim on assets and earnings than common stock, typically carrying a fixed dividend or priority return. The Norm: Used in real estate club deals to offer a “safer” 10-12% return tier to risk-averse investors.
20. Promote (Carried Interest) The “Bonus” What it is: The Sponsor’s profit share (usually 20%) after you get your money back. Why it matters: This is how the Sponsor gets rich. It aligns them to make you money first. Definition: A Promote (carried interest) is the Sponsor’s disproportionate profit share, paid only after investors recover capital and achieve a minimum return, aligning Sponsor rewards with outperformance. The Norm: 20% is standard; “Tiered” promotes (going up to 30% if returns are huge) are also common.
21. Side Letter The “VIP” Contract What it is: A secret (or private) extra contract between the Sponsor and a specific big investor giving them special perks. Why it matters: Big checks get perks—lower fees, extra information rights, or the right to transfer shares. You should ask if any exist. Definition: A separate agreement used to grant special rights or privileges to a specific investor that override or supplement the terms of the main Limited Partnership Agreement. The Norm: Standard for anchor investors; smaller investors usually don’t get them.
22. SPV (Special Purpose Vehicle) The “Wrapper” What it is: The shell company (usually an LLC or LP) created only to hold this one specific asset. Why it matters: It isolates liability. If the asset goes bankrupt, it doesn’t drag down your other investments or the Sponsor’s other deals. Definition: A subsidiary legal entity created for a specific business objective, such as isolating a financial risk or holding a single asset, to protect investors from external liabilities. The Norm: Every Club Deal is essentially an SPV.
23. Tag-Along Rights The “Exit Protection” What it is: If the Sponsor sells their shares to a buyer, they must let you sell yours too at the same price. Why it matters: Prevents you from being “orphaned”—stuck owning a minority stake in a private company with a stranger you didn’t pick. Definition: Contractual rights allowing minority shareholders to join a majority shareholder in the sale of a company, ensuring they receive the same price and terms. The Norm: A “must-have” for any minority club deal investor.
24. Term Sheet The “Pre-Nup” What it is: The 2-5 page summary of the deal before the 100-page lawyers’ contracts are written. Why it matters: This is where the real negotiation happens. Once you sign this, it’s very hard to change the commercial terms later. Definition: A non-binding document outlining the material terms and conditions of a proposed investment, serving as a template for the final binding legal agreements. The Norm: Always non-binding (except for confidentiality/exclusivity), but treated as morally binding.
25. Waterfall (Distribution Waterfall) The “Payout Order” What it is: The flowchart that dictates exactly who gets the next dollar of cash at every stage of profit. Why it matters: It’s complex math. A small tweak in the “Catch-up” or “Hurdle” can shift millions from you to the Sponsor. Definition: The hierarchical structure determining the order and priority in which capital gains and cash flows are distributed among limited partners and the general partner. The Norm: 1. Return Capital → 2. Pay Hurdle (Pref) → 3. Sponsor Catch-up → 4. Split remaining profits (Promote).

Definition

1. Allocation Rights

The “First Refusal” Ticket

What it is: A negotiated right to receive a specific share (or dollar amount) of future deal flow from a Sponsor.
Why it matters: In a hot market, the best club deals are oversubscribed. Without this right, you might only see the “leftover” deals that others passed on.
Definition: Contractual priority granted to a strategic investor to participate in future co-investments or club deals, typically up to a defined percentage or ticket size.
The Norm: Often granted to “Anchor Investors” who commit early capital or back the Sponsor’s overhead.

2. Capital Call (Drawdown)

The “Check Request”

What it is: A formal notice from the SPV manager requiring you to wire your committed funds.
Why it matters: In club deals, these timelines are often tight (5-10 days) because the deal closing depends on it. Missing a call can result in severe penalties (see Default).
Definition: The legal demand for an investor to pay a portion of their committed capital to the investment vehicle to fund a transaction or expenses.
The Norm: Usually sent 10 business days before funding is needed, accompanied by a detailed calculation of your share.

3. Catch-Up (Sponsor Catch-Up)

The “Sponsor’s Accelerator”

What it is: A step in the payout waterfall where the Sponsor gets paid quickly after you get your Hurdle Rate.
Why it matters: It determines how fast the Sponsor “catches up” to their profit share. A “100% Catch-up” is aggressive; it means they get every dollar of profit after the hurdle until they reach their 20% carry.
Definition: A distribution mechanism allowing the Sponsor to receive a accelerated share of profits until their total return equals the agreed carry percentage of total profits.
The Norm: 80-100% catch-ups are common in PE; Real Estate sometimes sees 50% (friendlier to LPs).

4. Club Deal

The “Group Buy”

What it is: A transaction where a small group of investors pools capital to acquire a single asset, rather than investing in a blind fund.
Why it matters: You know exactly what you are buying (Asset A), unlike a fund where you buy a “strategy.” You get more control but take on single-asset risk.
Definition: A syndicated investment vehicle formed by a group of investors to acquire a controlling or significant interest in a specific target company or asset.
The Norm: Typically involves 3-10 active investors and a Sponsor/Lead who arranges the terms.

5. Co-Investment

The “Sidecar” Deal

What it is: Investing directly into a specific company alongside a main Private Equity fund.
Why it matters: The “Holy Grail” for LPs because it usually offers reduced fees (often “No Fee / No Carry”) compared to the main fund to blend down the total cost.
Definition: A direct minority investment made by an LP alongside a General Partner’s main fund in a specific portfolio company.
The Norm: Often offered to large LPs as a sweetener for committing to the main blind-pool fund.

6. Dead Deal Costs (Broken Deal Expenses)

The “Sunk Cost” Risk

What it is: The bills (lawyers, accountants, consultants) left over if a deal falls apart before closing.
Why it matters: In a Deal-by-Deal model, if the deal dies, who pays? The Sponsor? Or the investors who “circled” the deal?
Definition: Third-party expenses incurred during the due diligence and negotiation of a potential transaction that fails to close.
The Norm: Investors should demand a “Cap” on their liability for these costs if they haven’t formally closed the SPV yet.

7. Deal-by-Deal (Independent Sponsor)

The “Gun for Hire” Model

What it is: A Sponsor who doesn’t have a committed fund but raises capital separately for each acquisition.
Why it matters: They are hungrier (they only get paid if deals close) but carry more execution risk (capital might not show up).
Definition: An investment model where capital is raised and structured for one specific transaction at a time, rather than from a committed blind pool.
The Norm: Higher Promote (often 20-25%) to compensate for the lack of steady management fees.

8. Deal Fee / Transaction Fee

The “Closing Bonus”

What it is: A one-time cash fee paid to the Sponsor at the moment the deal closes (e.g., 1-2% of deal value).
Why it matters: It’s an immediate cash-out for the Sponsor, regardless of how the investment performs later. It increases your entry valuation.
Definition: An upfront fee charged by the Sponsor or arranger for sourcing, structuring, and closing the investment transaction.
The Norm: 1% to 2% of the total transaction value (Enterprise Value).

9. Governance Rights

The “Seat at the Table”

What it is: Your legal power to influence the company—Board seats, veto rights on debt, or approval for selling the asset.
Why it matters: In a fund, you have zero say. In a Club Deal, major investors often demand these rights to protect their capital.
Definition: Contractual rights granting investors oversight or decision-making authority over key operational or financial actions of the SPV or portfolio company.
The Norm: “Major Decisions” (selling the company, taking big debt) usually require approval from a Supermajority of investors.

10. Gross IRR vs. Net IRR

The “Real” Return

What it is: Gross is the property’s return; Net is your return after the Sponsor takes their fees and cut.
Why it matters: A Sponsor might brag about a “25% Gross IRR” track record, but if their fees are heavy, your Net might only be 15%.
Definition: Gross IRR calculates returns at the asset level; Net IRR calculates returns at the investor level after deducting all management fees, expenses, and carried interest.
The Norm: Always base your decision on Net returns.

11. Hurdle Rate (Preferred Return)

The “First Dibs” on Profit

What it is: The minimum annual return (e.g., 8%) you must receive before the Sponsor gets a single dollar of profit share.
Why it matters: It protects you. It ensures the Sponsor only shares in the “upside,” not the baseline return.
Definition: A threshold rate of return that must be distributed to limited partners before the general partner is entitled to receive any performance fees or carried interest.
The Norm: Typically 8% compounding annually for PE/Real Estate; sometimes lower (6-7%) for Core Infrastructure.

12. IC Memo (Investment Committee Memo)

The “Thesis”

What it is: The detailed 20-50 page document analyzing the deal’s merits, risks, financial model, and market.
Why it matters: This is the “homework.” You should never invest based on a teaser deck. The IC Memo is what the Sponsor’s own internal team uses to approve the deal.
Definition: A comprehensive internal document presenting the investment thesis, due diligence findings, and risk analysis to obtain formal approval for a transaction.
The Norm: In Club Deals, professional Sponsors share a redacted version of this with prospective LPs to prove their diligence.

13. Key Man / Key Person Clause

The “Bus Factor” Protection

What it is: A clause that pauses the deal or lets you exit if the main dealmaker (the “Key Person”) quits, dies, or is fired.
Why it matters: You are betting on the jockey, not just the horse. If the jockey leaves, you need a way out or a say in who takes over.
Definition: A contractual provision that triggers a suspension of the investment period or a governance vote if specified principal members of the Sponsor team depart.
The Norm: Standard in funds; less common in single-asset SPVs but critical if the asset requires active turnaround.

14. LP (Limited Partner)

The “Silent” Investor

What it is: The legal status of most passive investors. You put up the money, but have limited liability (can’t lose more than you invest).
Why it matters: To keep this protection, you strictly cannot be involved in day-to-day management.
Definition: An investor in a partnership who provides capital and has liability limited to their investment, without authority to manage the partnership’s daily operations.
The Norm: Standard structure for Family Offices and HNWIs in private vehicles.

15. Management Fee

The “Rent”

What it is: An annual fee (e.g., 2% of capital) paid to the Sponsor to cover their office, salaries, and operations.
Why it matters: In a Club Deal, this should be lower than a fund because they aren’t “searching” for deals—they found this one already.
Definition: A recurring periodic fee paid by the fund or SPV to the manager for operational and administrative services, typically calculated as a percentage of committed or invested capital.
The Norm: 1.0% to 2.0% per year; often drops after the asset is sold or stabilized.

16. MOIC (Multiple on Invested Capital)

The “Cash Multiplier”

What it is: A simple score: “How many times my money did I get back?” (e.g., 2.0x means you doubled your money).
Why it matters: Unlike IRR, MOIC doesn’t care about time. A 2.0x return in 10 years is a terrible IRR but a great MOIC. You need both metrics.
Definition: A performance metric calculating the ratio of total cash returned plus remaining value divided by the total capital invested.
The Norm: PE targets 2.0x – 3.0x; Real Estate might target 1.5x – 2.0x depending on risk.

17. Pari Passu

The “Fair Shake”

What it is: Fancy Latin for “on equal footing.”
Why it matters: It means you get paid at the same time and rate as the big guys. No one cuts in line ahead of you in the payout waterfall.
Definition: A legal term indicating that two or more assets, securities, or investors are managed without preference, sharing rights and payouts pro-rata.
The Norm: Essential for minority investors to ensure they aren’t subordinated to the Sponsor’s friends or insiders.

18. Pledge Fund

The “Soft” Commitment

What it is: A hybrid structure. You commit to a “fund” concept, but you have the right to say “No” to every specific deal presented.
Why it matters: Best of both worlds: you get deal flow like a fund LP, but retain the discretion of a direct investor.
Definition: An investment vehicle where investors provide a soft commitment of capital but retain the discretion to opt-in or opt-out of each individual portfolio investment.
The Norm: Popular with Family Offices who want to outsource sourcing but keep final approval.

19. Preferred Equity

The “Safety” Layer

What it is: A class of shares that gets paid back first (like debt) but has higher upside (like equity).
Why it matters: It offers downside protection. If the deal goes bad, “Pref” holders get their money out before the Common Equity holders get a dime.
Definition: A class of ownership with a higher claim on assets and earnings than common stock, typically carrying a fixed dividend or priority return.
The Norm: Used in real estate club deals to offer a “safer” 10-12% return tier to risk-averse investors.

20. Promote (Carried Interest)

The “Bonus”

What it is: The Sponsor’s profit share (usually 20%) after you get your money back.
Why it matters: This is how the Sponsor gets rich. It aligns them to make you money first.
Definition: A Promote (carried interest) is the Sponsor’s disproportionate profit share, paid only after investors recover capital and achieve a minimum return, aligning Sponsor rewards with outperformance.
The Norm: 20% is standard; “Tiered” promotes (going up to 30% if returns are huge) are also common.

21. Side Letter

The “VIP” Contract

What it is: A secret (or private) extra contract between the Sponsor and a specific big investor giving them special perks.
Why it matters: Big checks get perks—lower fees, extra information rights, or the right to transfer shares. You should ask if any exist.
Definition: A separate agreement used to grant special rights or privileges to a specific investor that override or supplement the terms of the main Limited Partnership Agreement.
The Norm: Standard for anchor investors; smaller investors usually don’t get them.

22. SPV (Special Purpose Vehicle)

The “Wrapper”

What it is: The shell company (usually an LLC or LP) created only to hold this one specific asset.
Why it matters: It isolates liability. If the asset goes bankrupt, it doesn’t drag down your other investments or the Sponsor’s other deals.
Definition: A subsidiary legal entity created for a specific business objective, such as isolating a financial risk or holding a single asset, to protect investors from external liabilities.
The Norm: Every Club Deal is essentially an SPV.

23. Tag-Along Rights

The “Exit Protection”

What it is: If the Sponsor sells their shares to a buyer, they must let you sell yours too at the same price.
Why it matters: Prevents you from being “orphaned”—stuck owning a minority stake in a private company with a stranger you didn’t pick.
Definition: Contractual rights allowing minority shareholders to join a majority shareholder in the sale of a company, ensuring they receive the same price and terms.
The Norm: A “must-have” for any minority club deal investor.

24. Term Sheet

The “Pre-Nup”

What it is: The 2-5 page summary of the deal before the 100-page lawyers’ contracts are written.
Why it matters: This is where the real negotiation happens. Once you sign this, it’s very hard to change the commercial terms later.
Definition: A non-binding document outlining the material terms and conditions of a proposed investment, serving as a template for the final binding legal agreements.
The Norm: Always non-binding (except for confidentiality/exclusivity), but treated as morally binding.

25. Waterfall (Distribution Waterfall)

The “Payout Order”

What it is: The flowchart that dictates exactly who gets the next dollar of cash at every stage of profit.
Why it matters: It’s complex math. A small tweak in the “Catch-up” or “Hurdle” can shift millions from you to the Sponsor.
Definition: The hierarchical structure determining the order and priority in which capital gains and cash flows are distributed among limited partners and the general partner.
The Norm: 1. Return Capital → 2. Pay Hurdle (Pref) → 3. Sponsor Catch-up → 4. Split remaining profits (Promote).

The Club Deal & Private Equity Glossary.