4 Steps Of Distribution Waterfalls - Fund Accounting 101

4 Steps Of Distribution Waterfalls - Fund Accounting 101


Waterfalls usually consists of four buckets/phases:

  • Return of Capital – 100% of profits are distributed to the investors until the total amount of their contributed capital is returned.
  • Preferred Return – 100% of profits are distributed to the investors until a predetermined annual rate (a preferred return) is reached (usually 7-9%).
  • Catchup – 100% of profits are distributed to the manager to “catch up” to management’s contractual performance fee or carried interest (typically 20%)
  • Carried Interest­ – a stated percentage of profits is distributed to the manager rewarding performance (typically 20%) with the remainder distributed to the investors (typically 80%).

Read More: Fund Accounting 101: Distribution Waterfalls


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