--- title: "Fund terms and economics | Altss Taxonomy" description: "This hub covers the terms of a private fund: what investors pay the manager, how profits are split, how capital moves in and out over the fund's life, and…" canonical: "https://altss.com/taxonomy/fund-terms-and-economics" --- Topic hub # Fund terms and economics This hub covers the terms of a private fund: what investors pay the manager, how profits are split, how capital moves in and out over the fund's life, and which rights investors hold. Most of these terms are set in the [limited partnership agreement](https://altss.com/glossary/limited-partnership-agreement) and adjusted for individual investors in [side letters](https://altss.com/glossary/side-letter). After the fund documents, sections follow the money: fees ([management fee](https://altss.com/glossary/management-fee), [fee offsets](https://altss.com/glossary/fee-offset)), [carried interest](https://altss.com/glossary/carried-interest-carry) and the [distribution waterfall](https://altss.com/glossary/waterfall), fund expenses, alignment terms such as the [GP commitment](https://altss.com/glossary/gp-commitment), capital commitments and flows, the fund's term, and governance and LP rights such as the [LPAC](https://altss.com/glossary/lpac) and the [key person clause](https://altss.com/glossary/key-person-clause). Where practice differs, as with European and American waterfalls, each variant has its own entry. Not in this hub: the legal vehicle that holds the fund, such as a [limited partnership](https://altss.com/glossary/limited-partnership) or a feeder fund, which is in [Fund structures](https://altss.com/taxonomy/fund-structures), and the fundraising process, which is in [Fundraising](https://altss.com/taxonomy/fundraising). Hedge fund fee terms are in [Hedge funds](https://altss.com/taxonomy/hedge-funds-hf). Publisher: Altss LLCContent modified 2026-10-01 30 concepts · 1 framework ## Reference index ### Fund documents 2 concepts - [Limited Partnership Agreement](https://altss.com/glossary/limited-partnership-agreement) - [Side Letter](https://altss.com/glossary/side-letter) ### Fees 4 concepts - [Management Fee](https://altss.com/glossary/management-fee) A management fee is the periodic fee a private fund pays its manager for operating the fund, usually a percentage of LP commitments during the investment period and of invested capital or NAV after it. - [Two and Twenty](https://altss.com/glossary/two-and-twenty) Two and twenty is shorthand for a manager fee structure of a 2% annual management fee plus 20% of profits as carried interest or a performance fee, the reference point for private equity, venture and hedge fund fees. - [Management Fee Offset](https://altss.com/glossary/fee-offset) - [Fee Drag](https://altss.com/glossary/fee-drag) ### Carried interest and waterfalls 8 concepts - [Carried Interest](https://altss.com/glossary/carried-interest-carry) - [Preferred Return (Pref)](https://altss.com/glossary/preferred-return) A preferred return (pref) is the annual rate of return, commonly 8%, that LPs must receive on their contributed capital through the distribution waterfall before the general partner shares in profits as carried interest. - [Hurdle Rate](https://altss.com/glossary/hurdle-rate) A hurdle rate is the minimum rate of return an investment or fund must achieve before a performance-based payment starts; in private funds, the threshold, commonly 8% a year, that LP capital must earn before carried interest is paid. - [GP Catch-Up](https://altss.com/glossary/catch-up) A GP catch-up is the waterfall tier after the preferred return in which the general partner receives all or most distributions until its cumulative share equals its carry percentage of all profits distributed so far. - [Distribution Waterfall](https://altss.com/glossary/waterfall) A distribution waterfall is the order, set in a fund's limited partnership agreement, in which investment proceeds are divided between LPs and the general partner: typically return of capital, preferred return, GP catch-up, then a carried-interest split. - [European (Whole-Fund) Waterfall](https://altss.com/glossary/european-waterfall) A European (whole-fund) waterfall is a distribution waterfall that pays carried interest only after LPs have received back all capital contributed to the fund plus the preferred return, measured across the whole fund rather than deal by deal. - [American (Deal-by-Deal) Waterfall](https://altss.com/glossary/american-waterfall) An American (deal-by-deal) waterfall is a distribution waterfall that pays carried interest on each investment as it is realised, once LPs have recovered the capital for that deal and, depending on the fund agreement, related costs and realised losses. - [GP Clawback](https://altss.com/glossary/clawback) ### Alignment 2 concepts - [GP Commitment](https://altss.com/glossary/gp-commitment) The GP commitment is the capital that a fund's general partner and its principals commit to their own fund alongside LPs, putting the managers' own money at risk in the same investments. - [Alignment of Interests](https://altss.com/glossary/alignment-of-interests) ### Capital commitments and flows 7 concepts - [Capital Commitment](https://altss.com/glossary/capital-commitment) A capital commitment is an investor's contractual obligation, made in a fund's subscription agreement and limited partnership agreement, to contribute up to a stated amount of money when the general partner calls it over the life of the fund. - [Capital Call](https://altss.com/glossary/capital-call) A capital call is the general partner's formal demand, issued under the limited partnership agreement, that limited partners pay a specified portion of their unfunded commitments to the fund by a stated date. - [Unfunded Commitment](https://altss.com/glossary/unfunded-commitment) An unfunded commitment is the portion of an investor's capital commitment to a fund that has not yet been called and that the general partner may still draw under the limited partnership agreement. - [Paid-In Capital](https://altss.com/glossary/paid-in-capital-pic-contributed-capital) - [Distributions](https://altss.com/glossary/distributions) - [Recallable Distributions](https://altss.com/glossary/recallable-distributions) - [Recycling](https://altss.com/glossary/recycling-reinvestment-of-distributions) ### Fund term and lifecycle 3 concepts - [Vintage Year](https://altss.com/glossary/vintage-year) A fund's vintage year is the year used to group it with comparable funds for benchmarking and portfolio planning, usually the year of its first capital call or of its first legally binding close; conventions differ. - [Fund Term](https://altss.com/glossary/term-fund-life) - [Investment Period](https://altss.com/glossary/investment-period) The investment period is the phase of a closed-end fund's life, set in its limited partnership agreement, in which the general partner may call capital for new investments; afterwards calls are limited to follow-ons, committed deals, fees and expenses. ### Governance and LP rights 4 concepts - [Limited Partner Advisory Committee](https://altss.com/glossary/lpac) - [Key Person Clause](https://altss.com/glossary/key-person-clause) A key person clause is a limited partnership agreement provision that names individuals the fund depends on and, if they leave or stop devoting the required time, triggers protections such as suspending new investment until LPs decide how to proceed. - [Most Favored Nation Clause](https://altss.com/glossary/most-favored-nation-mfn) - [Conflicts of Interest (Fund)](https://altss.com/glossary/conflict-of-interest) ## Methodologies and frameworks - Framework · Version 1.1.0 ### [Fund Terms & Alignment Framework](https://altss.com/knowledge-center/frameworks/fund-terms-and-alignment-framework) A method for reviewing private fund terms: management fee base and step-downs, carried interest, preferred return, catch-up, whole-fund and deal-by-deal waterfalls, clawback, fee offsets, GP commitment and LP governance rights, with worked calculations and a mapping to ILPA Principles 3.0 and the Model LPA. ## Canonical URL https://altss.com/taxonomy/fund-terms-and-economics