Many private equity fund agreements contain a provision permitting, or under certain circumstances requiring, the general partner to establish an “alternative investment vehicle,” commonly referred to as an AIV, that, for a variety of tax or regulatory reasons, will make a portfolio investment in lieu of the main fund.

Private equity funds invest in private companies and seek to generate returns by improving their operations, management, and financial performance. They typically buy controlling stakes or significant minority stakes in companies and hold them for several years before exiting through a sale or an initial public offering (IPO).