Key Concepts to Know

Private investments use unique structures and terms that differ from traditional stocks. Knowing these concepts helps you evaluate deals effectively.

Preferred Returns
The minimum return investors are entitled to before the sponsor receives profits.
Example: An 8% preferred return means investors get the first 8% of profits annually.

Equity Splits
After the preferred return is paid, profits are split between investors and the sponsor.
Example: A 70/30 split means investors receive 70%, sponsors receive 30%.

Fees and Waterfalls
Acquisition Fees – paid to the sponsor for sourcing the deal.
Asset Management Fees – for ongoing operations.
Waterfall – defines how returns are distributed between investors and sponsors over time.
Timelines
Most private deals are long-term, ranging from 3–7 years. Some pay quarterly cash flow, while others deliver returns only at exit.

Takeaway
Understanding these core terms gives you confidence when reviewing investment opportunities.