Cryptocurrency Q&A
What is a waterfall in private equity?
What is a waterfall in private equity?
Bianca
Thu Oct 10 2024
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7 answers
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A waterfall in private equity refers to a profit distribution framework that determines how investment returns are allocated between limited partners (LPs) and general partners (GPs). It typically involves several steps, including the return of capital to LPs, the payment of preferred returns to LPs, catch-up provisionss for GPs, and the final distribution of remaining profits between LPs and GPs according to a specified ratio.
7 answers
Stefano
Sat Oct 12 2024
The concept of a private equity waterfall revolves around the systematic allocation of profit proceeds from an investment fund. This methodical approach ensures a structured distribution process that is typically hierarchical in nature.
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Lorenzo
Sat Oct 12 2024
The term "waterfall" aptly captures the essence of this distribution mechanism. It alludes to the gradual and orderly cascade of profits, akin to a waterfall flowing down a predetermined course.
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KimonoGlitter
Sat Oct 12 2024
In a private equity waterfall, the initial distribution phase often prioritizes the repayment of capital contributions made by investors. This ensures that investors receive their initial investment back before any profits are shared.
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Alessandro
Fri Oct 11 2024
Following the return of capital, subsequent layers of the waterfall typically address the distribution of preferred returns or hurdle rates. These are predetermined rates of return that investors are entitled to before any excess profits are distributed.
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GwanghwamunGuardianAngelWingsBlessing
Fri Oct 11 2024
Once preferred returns have been satisfied, the remaining profits, often referred to as "carry" or "promote," are then distributed among the investment fund's partners or managers. This represents their share of the investment's success.
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