Glossary

An approach to investing in which the portfolio manager selects the investments that make up a portfolio, typically with the goal of outperforming a given benchmark index.

Securities backed by pools of mortgage loans originating and guaranteed, as to timely payment of principal and interest, by Ginnie Mae, a government agency, or Fannie Mae and Freddie Mac, government-sponsored entities.

An aggressive investment strategy typically involves seeking capital appreciation by investing in assets with higher potential returns, which also come with higher risks. 

See “alternative asset.”

Alternative assets (or "alts") are investments that fall outside of traditional asset classes like stocks, bonds and cash equivalents. They may include real estate, commodities, private equity, private credit and other non-traditional investments. Investments in these kinds of assets have unique risks that investors should consider.

Securities that are backed by a pool of assets that generate cash flow, such as loans, leases, credit card balances or receivables.

Asset-based finance (ABF) is a broad form of non-bank lending backed by a variety of collateral, including tangible and financial assets owned by corporations and individuals. 

A bond is a debt security issued by corporations, municipalities or governments to raise capital.

Capital structure refers to the way a corporation finances its operations and growth through a combination of debt, equity and hybrid securities. Investing in different tranches of a company's capital structure entails different levels of risk exposure.

Collateral is an asset pledged by a borrower to secure a loan or credit, which can be seized by the lender if the borrower defaults on the loan. 

Commercial finance involves providing funding solutions to businesses to support their operations, growth and capital expenditures. 

A conservative investment strategy focuses on preserving capital and minimizing risk, often by investing in assets considered to be lower in risk compared to others, such as government bonds or blue-chip stocks. 

Contractual cash flows, in the context of asset-based finance, are investments in contract-based assets such as intellectual property and royalties that offer a consistent source of returns due to the ongoing payments deriving from the underlying contract.

Core bonds are high-quality, investment-grade bonds that can form the foundation of a fixed income investment portfolio. 

A covenant is a clause in a loan agreement that requires the borrower to fulfill certain conditions or prohibits specific actions. 

Correlation refers to a statistical measure that describes the degree to which two variables move in relation to each other.

A contractual arrangement in which a borrower (such as an individual or corporation) receives cash and agrees to repay, usually with interest, at a later point. In financial markets, this can be in the form of a loan, bond or similar type of debt note.

The credit cycle is the natural fluctuation of the availability and cost of credit over time, influenced by economic conditions and market dynamics. 

Typically, a public credit security receives a rating designed to provide an indication of an issuer’s creditworthiness from at least one Nationally Recognized Statistical Rating Organization (NRSRO), such as Standard & Poor’s, Moody’s or Fitch. Ratings can range from AAA/Aaa (highest) to D (lowest), with “investment grade” typically considered BBB/Baa and above and “below investment grade” typically considered BB/Ba and below. Private credit securities may be unrated by NRSROs, or their letter rating may not be published publicly.

A credit spread is the difference in yield between two debt instruments of similar maturity but differing credit quality. This spread compensates investors for the additional risk associated with lower-quality debt.

Creditworthiness is an assessment of a borrower's ability to repay debt obligations, based on factors such as credit history, income and current debt levels. 

Default occurs when a borrower fails to meet the legal obligations of a loan agreement, such as missing scheduled interest or principal payments.

Direct lending involves non-bank financial institutions providing loans directly to companies without intermediaries like traditional banks. 

Diversification is an investment strategy that involves spreading investments across various financial instruments, industries and geographic regions to reduce risk. 

Due diligence refers to the thorough research and analysis conducted before engaging in a financial transaction or investment.

In finance, duration measures the sensitivity of the price of a bond or other debt instrument to changes in interest rates.

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It is a financial metric used to assess a company's operating performance by evaluating earnings generated from core business operations, excluding the effects of capital structure, tax rates and non-cash items like depreciation and amortization. 

A legal structure managed by nonprofit organizations to invest money gifted from donors to support initiatives such as capital improvements, academic scholarships or other programs to support a nonprofit’s mission.

Fixed income refers to types of investment securities that typically pay investors fixed interest or dividend payments until their maturity date. 

Fixed income public-private solutions are funds that invest in a mixture of public and private credit, with a goal of potentially outperforming the returns of public-only fixed income investment. Fixed income public-private solutions can use the vehicle of an interval fund to bring periodic liquidity to underlying illiquid private assets.

The Global Financial Crisis (GFC) was a severe worldwide economic crisis that occurred in 2007-2008, triggered by the collapse of the U.S. housing market and the excessive risk-taking of financial institutions. 

Hard assets are tangible, physical assets that typically have intrinsic value. These include real estate, precious metals (gold, silver), commodities and equipment. 

A hedge fund is a pooled investment fund that employs various strategies — such as leveraging, derivatives and short-selling — to generate returns for accredited or institutional investors. 

Debt issued by entities with credit ratings that are below investment grade. This type of debt usually carries greater default risk but typically offers higher investment yield potential compared to higher rated debt securities.

Illiquidity is a condition of assets that cannot be easily sold without significantly affecting its price. Illiquid assets, such as real estate or private equity, cannot be easily converted into cash.

The illiquidity premium is the additional return investors typically expect for investing in a less liquid asset. This premium is intended to compensate investors for the risk of not being able to quickly sell the asset at market value.

Income is money received by an individual or business from various sources, including wages, salaries, dividends, interest, rental payments and profits. Income is taxable and is used to assess financial stability and purchasing power.

Inflation is the general increase in the overall price level of goods and services in an economy over time. It reflects a decrease in the purchasing power of money, meaning consumers can buy less with the same amount of money as prices rise. 

Typically a large pool of professional investors or an organization such as a corporation, sovereign wealth fund or endowment who invests cash in financial markets for the benefit of the organization.

An interval fund is a closed-end, registered investment company that offers liquidity to investors at pre-scheduled “repurchase windows,” up to an amount between 5% and 25% of the fund’s total outstanding shares. These funds are used as a mechanism to bring periodic, interval-based liquidity to investors while holding illiquid assets such as private credit.

The Investment Company Act of 1940 is a federal law that regulates the organization and activities of registered investment companies, including mutual funds and closed-end funds. Its primary purpose is to protect investors by minimizing conflicts of interest and ensuring transparency in the investment industry. 

Investment grade refers to bonds or other debt securities that are rated as having a relatively low risk of default by credit rating agencies. These ratings are typically 'BBB-' or higher by Standard & Poor's and Fitch Ratings, or 'Baa3' or higher by Moody's.

Debt instruments issued by corporations, often thought to have a higher credit quality and lower risk of default compared to lower rated debt securities, based on rating agency valuations.

Junior debt, also known as subordinated debt, is a type of debt that ranks below senior debt in a company's capital structure. In the event of liquidation, junior debt holders are paid after senior debt holders but before equity investors.

A K-1 form is a tax document used to report the income, deductions and credits from partnerships, S corporations, estates and trusts to the Internal Revenue Service (IRS). Individual partners, shareholders or beneficiaries receive a Schedule K-1 to include in their personal tax returns, reflecting their share of the entity's income.

KKR & Co. Inc. (Kohlberg Kravis Roberts & Co.) is a global investment firm that manages multiple alternative asset classes, including private equity and private credit.

Leverage involves using borrowed capital to increase the potential return of an investment. While it can amplify profits, leverage also increases the risk of losses, as obligations to repay the borrowed funds remain regardless of the investment's performance.

A leveraged loan is a type of loan extended to companies or individuals that already have considerable amounts of debt or poor credit history. 

In bankruptcy, liquidation refers to the process where a company's operations cease, and its assets are sold to pay off creditors.

Liquidation of investments is converting assets into cash. This can occur for various reasons, such as rebalancing a portfolio, meeting cash flow needs or closing an investment fund. The process may involve selling securities or other assets in the open market.

Liquidity refers to the ease with which an asset can be quickly converted into cash without significantly affecting its market price. Highly liquid assets, like stocks of large publicly traded companies, can be sold rapidly with minimal price impact, whereas assets like real estate are considered less liquid.

Mark-to-market is an accounting method that involves recording the value of an asset or liability at its current market price. This approach reflects the real-time value of assets and liabilities, providing a more accurate financial picture. However, in illiquid or volatile markets, mark-to-market valuations can lead to significant fluctuations in reported financial positions.

Mark-to-model is an accounting method used to value assets based on financial models rather than observable market prices. This approach is employed when market prices are not available or reliable. While it allows for valuation in illiquid markets, it also introduces model risk, as the accuracy of valuations depends on the assumptions and inputs used in the models.

Maturity refers to the date on which a financial instrument, such as a bond or loan, becomes due for payment. At maturity, the principal amount of the debt is repaid to investors, and the issuer's obligation ends. The term to maturity is the remaining time until this date.

Mezzanine debt is a hybrid form of financing that combines elements of debt and equity. It is typically unsecured and subordinated to senior debt but ranks above equity in a company’s capital structure in the event of its liquidation.

A mortgage is a loan secured by real property, where the property itself serves as collateral.

A mutual fund is an investment vehicle that pools money from multiple investors to purchase a portfolio of securities, such as stocks, bonds or other assets. Mutual fund investors own shares of the fund but do not own the underlying securities purchased.

Net Asset Value (NAV) represents the per-share value of an investment fund. It is calculated by subtracting the fund's liabilities from its total assets and then dividing by the number of outstanding shares. NAV is typically determined at the end of each trading day and reflects the value of the fund's holdings at that time.

Net yield refers to the annual return on an investment after accounting for all expenses, taxes and fees. It provides investors with a clearer picture of the actual earnings generated by an investment, as it considers the costs associated with holding or managing the investment. Net yield is an important metric for comparing the profitability of different investment opportunities.

In finance, to "originate" means to create or initiate a loan or credit product. For example, when a bank or financial institution provides a new mortgage or personal loan to a borrower, it is originating that loan. The origination process includes evaluating the borrower's creditworthiness, processing the necessary documentation and disbursing the funds.

Periodic liquidity refers to the availability of converting investments or assets into cash at specific intervals. Certain investment vehicles, such as interval funds, offer investors the opportunity to sell their shares back to a fund at predetermined times, providing liquidity on a scheduled basis. 

Private credit refers to non-bank lending where investors provide loans or other financing options directly to private companies or projects, outside of traditional public markets. Private credit is typically used by businesses seeking capital without issuing public debt or equity.

Private debt, often used interchangeably with private credit, involves the extension of loans or credit by non-bank entities to private companies. These debt instruments are not issued or traded on public exchanges and are utilized by companies seeking alternative funding sources outside traditional banking systems.

Private equity involves investment firms acquiring ownership stakes in private companies, often with the goal of restructuring, growing or eventually selling the businesses for a profit. These investments are typically long-term and involve active management to enhance the value of the company before an exit strategy, such as a sale or initial public offering (IPO), is executed.

In an interval fund, if all of the investors' combined repurchase requests exceed the fund's repurchase limit, each investor's repurchase will be prorated (reduced) based on the excess request relative to their ownership of shares in the fund.

Public equities refer to shares of ownership in publicly traded companies that are listed on stock exchanges. Investors can buy and sell these shares in the open market, providing liquidity and the opportunity to participate in the company's profits through dividends and capital appreciation.

A public-private fund (or solution) is a fund that invests in a mixture of public and private assets, with a goal of potentially outperforming the returns of public-only investment. Public-private solutions can use the vehicle of an interval fund to offer periodic liquidity while holding illiquid private assets.

A real asset is a tangible or physical asset that has intrinsic value due to its substance and properties. Examples include real estate, commodities and infrastructure. These assets are valued for their utility and scarcity and often serve as a hedge against inflation.

The real interest rate is the rate of interest an investor expects to receive after allowing for inflation. It reflects the true cost of funds to the borrower and the real yield to the lender or investor. The real interest rate is calculated by adjusting the nominal interest rate to remove the effects of inflation.

A repurchase window refers to a specific period during which investors in certain investment vehicles, such as interval funds, can sell back their shares to the fund at the current net asset value (NAV). These windows occur at predetermined intervals, providing limited liquidity to investors.

In finance, risk is the possibility of losing some or all of an investment. It encompasses various types, including market risk, credit risk and liquidity risk, each representing different potential adverse outcomes that could affect the value of investments.

A risk premium is the additional return an investor expects to receive from an investment that carries higher risk compared to a risk-free asset. It compensates investors for taking on the extra uncertainty and potential for loss associated with riskier investments.

Risk tolerance refers to an investor's ability and willingness to endure declines in the value of their investments. It varies based on individual financial situations, investment goals and time horizons, influencing asset allocation and investment strategies.

Secured direct lending involves non-bank lenders providing loans directly to borrowers, typically private companies, with the loan secured by collateral. This collateral can help mitigate some of the lender's risk, as it can be seized and sold if the borrower defaults on the loan.

Debt securities that are backed by pools of individual loans — such as mortgages, auto loans or credit card debt — and sold to investors. This process provides liquidity to lenders and offers investors exposure to diversified debt instruments.

Seed capital refers to the initial capital included in a fund by the fund's originators, before any outside investors buy into the fund.

Semi-liquidity describes assets that are not entirely liquid but can be converted into cash more readily than illiquid assets. An example is an interval fund, which has only periodic liquidity via its regularly scheduled repurchase windows but is still more liquid than its underlying private assets. 

A senior loan is a debt obligation that holds priority over other unsecured or subordinated debt in terms of repayment. In the event of a borrower's liquidation, senior loans are repaid first, reducing the risk for lenders. These loans are often secured by collateral and may include covenants to help protect lenders' interests.

Typically a foreign state- or government-owned investment fund that is financed from budget savings, tax/tariff revenue or profits from state-sponsored enterprises.

The spending rate refers to the percentage of an investment portfolio's assets that is distributed or spent annually. The spending rate balances the need for current expenditures with the goal of preserving the portfolio's long-term value.

An independent investment adviser who is contracted by another investment adviser to manage all or part of a fund’s portfolio, typically providing investment analysis and selection in a particular, sometimes niche area of the investment universe.

Subordinated debt is a type of loan or security that ranks below other debts in terms of claims on assets or earnings. In the event of a company’s liquidation, subordinated debt holders are repaid only after senior debt holders have been fully compensated. This higher risk is often compensated by higher interest rates.

A tangible asset is a physical item of value owned by an individual or corporation. Examples include real estate, machinery, inventory and cash. Tangible assets are distinguished from intangible assets, which lack physical substance, such as patents, trademarks and goodwill.

The term premium is the additional yield that investors require to hold a longer term bond instead of a series of shorter term bonds. This premium compensates investors for the increased risks associated with longer maturities, including interest rate risk and inflation uncertainty.

Traditional bank financing refers to the conventional methods by which banks provide capital to businesses and individuals. This includes loans, lines of credit and mortgages, where the bank assesses the borrower's creditworthiness and collateral before extending credit. 

A business's capital structure consists of several "tranches" of investment, such as senior debt, junior debt, mezzanine debt and equity. Each tranche has different risk and return profiles for investors.

In the financial context, transparency refers to the extent to which investors have access to financial information and details about an investment. High transparency allows stakeholders to make informed decisions and can foster trust in the investment.

Underwriting is the process by which financial institutions assess the risk and determine the terms of a financial transaction, such as a loan, insurance policy or securities issuance. In lending, underwriting involves evaluating a borrower's creditworthiness.

Unitranche debt is a type of financing that combines senior and subordinated debt into a single loan facility. This structure simplifies the borrowing process by providing a single interest rate and set of terms, often used in private equity transactions to finance acquisitions. It offers borrowers flexibility and can expedite the financing process.

In finance, a vehicle refers to a legal structure used by investors to make and manage investments. Examples include mutual funds, exchange-traded funds (ETFs), separately managed accounts and interval funds.

Volatility measures the degree of variation in the price of a financial instrument over time. High volatility indicates significant price swings, while low volatility suggests more stable prices. It's a key indicator of market risk and is often used in assessing the risk profile of securities and portfolios.

Yield refers to the income return on an investment, typically expressed as an annual percentage rate. It includes interest or dividends earned from holding a particular security.