Run the numbers as you read
The Distribution Waterfall, Explained
How private fund profits flow to LPs and GPs through the four standard tiers — return of capital, preferred return, catch-up, and carried interest.
The Preferred Return (Hurdle Rate)
Typical 6–9% bands, simple vs. compounded, accrual vs. current pay — the hurdle the GP has to clear before they earn carry.
The Catch-Up Provision
Full vs. partial catch-up: how the GP claws their way to the headline split after the LP gets the pref.
IRR vs. MOIC: When Each One Lies
Same cash flows, different headlines — how time-shifting one distribution rewrites IRR but not the multiple.
The J-Curve and Why Year 2 Is Brutal
Typical fund NAV trajectory, fee drag in the early years, and when DPI breaks even.
Six clusters, 26 articles
Distribution waterfalls
How private fund profits are split between LPs and the GP, tier by tier.
The Distribution Waterfall, Explained
How private fund profits flow to LPs and GPs through the four standard tiers — return of capital, preferred return, catch-up, and carried interest.
European vs. American Waterfall
Fund-level vs. deal-by-deal accounting, why each exists, and who each one favors.
Return of Capital: The First Tier
What 'return of capital' actually returns, and how aggressive sponsors widen the definition.
The Preferred Return (Hurdle Rate)
Typical 6–9% bands, simple vs. compounded, accrual vs. current pay — the hurdle the GP has to clear before they earn carry.
The Catch-Up Provision
Full vs. partial catch-up: how the GP claws their way to the headline split after the LP gets the pref.
Time-Series Waterfalls: Why Timing Beats Multiple
What the year-by-year view exposes that the aggregated view hides — accrued pref dynamics, refi mechanics, and how IRR builds over time.
Carry and GP economics
Promote, clawback, GP commit, and the structures that determine when sponsors actually get paid.
Carried Interest (Promote): How GPs Get Paid
Definitions, common splits (80/20, 70/30, tiered promotes), and the tax background that shapes them.
Clawback Provisions: The LP's Safety Net
When clawbacks trigger, how escrow vs. personal-guarantee structures differ, and what 'after-tax' clawback really means.
GP Commit: Skin in the Game
Typical 1–5% of fund size, sponsor-financed vs. cash, and what to look for when the headline number is small.
Whole-Fund vs. Deal-by-Deal Carry
Same trade-off as European vs. American waterfalls, framed from the GP's compensation perspective.
Fees
The seven fee families inside a typical fund schedule and the drag they put on LP returns.
Fund Fee Schedules: A Field Guide
The seven fee families that show up in a typical PPM, where each lands in the cash flow, and what's market vs. aggressive.
Acquisition Fees: Why LPs Push Back
Basis, ranges, and the offsets sophisticated LPs negotiate for.
Asset Management Fees: AUM vs. Invested-Equity Basis
Why the basis matters more than the rate — and how to read the basis line in a PPM.
Disposition, Property Management, and Loan Servicing Fees
The long tail of fee drag that doesn't make the headline summary.
Returns math
IRR vs. MOIC, DPI, TVPI, the J-curve, vintage year — the numbers allocators actually track.
IRR vs. MOIC: When Each One Lies
Same cash flows, different headlines — how time-shifting one distribution rewrites IRR but not the multiple.
DPI, TVPI, RVPI: The Three Numbers Allocators Track
Definitions, when each is meaningful, and how they evolve over a fund's life.
The J-Curve and Why Year 2 Is Brutal
Typical fund NAV trajectory, fee drag in the early years, and when DPI breaks even.
Vintage Year: Why It Matters
Dispersion across vintages and what 'good vintage' actually means once the market settles.
Fund structure
PPMs, Reg D, accreditation, and the multi-class equity stacks that decide who gets paid first.
Reading a PPM: An Allocator's Anatomy
The sections that matter, the sections to skim, and where the waterfall language actually lives.
Reg D 506(b) vs 506(c): Marketing Rules for Private Funds
Solicitation rules, accreditation verification, and why 506(c) raises tend to look slicker.
Accredited Investor vs. Qualified Purchaser
Thresholds, fund-of-funds implications, and why some funds are 'QP-only'.
Multi-Class Equity Structures (A/B/I shares)
When sponsors slice the cap stack, how class-level waterfalls change LP outcomes, and what to ask before you pick a class.
Documents and the cast
Side letters, the LPAC, key-person clauses, and the people who advise the fund.
Side Letters and the MFN Clause
What gets negotiated, who gets MFN, and why MFN scope matters more than the headline term.
The LP Advisory Committee (LPAC)
Composition, powers, and what triggers a vote.
Key Person and No-Fault Divorce Provisions
What triggers each clause and the typical 75% supermajority threshold.
Who's Who: Sponsor, Administrator, Auditor, Counsel, Placement Agent
What each party does, what their absence signals, and what you can read from the names that show up in a PPM.
Everything in the Learning Center is educational research. Nothing here is investment, legal, tax, or accounting advice; it isn't an offer or solicitation, and it doesn't recommend or endorse any fund, sponsor, or strategy. Always consult your own qualified professionals before making investment decisions.