Advanced Finance
Distribution Waterfall & Carry Calculator
Where the money in a fund or a syndicated deal actually goes, tier by tier. Capital back first, then the preferred return, then the sponsor catches up, then everything left is split. The headline carry number on the term sheet is almost never the share the sponsor ends up with, and this shows you the gap.
Inputs
- LP contributed capital
- Total distributions to split
- Preferred return (hurdle)
- Years held
- Carried interest
- GP catch-up rate — 100% means the GP takes every dollar in the catch-up tier until it holds the full carry on profit so far. 50% is a common negotiated middle. 0% means no catch-up at all.
How to use this calculator
- Enter the capital the limited partners put in and the total distributions the deal or fund will pay out. The difference between the two is the profit that gets split.
- Set the preferred return and the years held. The pref compounds, so a long hold makes the hurdle much larger than the headline rate suggests.
- Set the carry and the catch-up rate. A 100% catch-up hands the GP every dollar in that tier until it holds the full carry on all profit so far. A 50% catch-up splits those dollars, and 0% means no catch-up at all, so the GP never recovers its share of the pref.
- Read the tiers in order, because each one only fills after the one above it is full. Then compare the headline carry to the effective carry at the bottom: that gap is what the catch-up term is worth, and it is one of the most negotiated lines in a partnership agreement.
- Try setting the catch-up to 100% and then to 0% with everything else unchanged. The swing in the GP's take is the whole reason that clause gets argued over.
What each term means
- Distribution waterfall
- The contractual order in which money leaving a deal is paid out: each tier fills completely before the next receives anything.
- Return of capital
- Tier one: LPs get their contributed money back before anyone is paid a profit share.
- Preferred return (pref / hurdle)
- A minimum annual return LPs earn on their capital before the sponsor takes any carry. Commonly 6-8%, usually compounding.
- GP catch-up
- A tier that pays the sponsor a large share of distributions until it holds its full carry percentage on the profit paid out so far. It 'catches up' for having taken nothing during the pref tier.
- Carried interest (carry)
- The sponsor's share of profit, classically 20%. It is a share of gains, not a fee on capital.
- Effective carry
- The sponsor's actual dollars as a percentage of total profit. Below the headline carry whenever the catch-up is less than full.
- LP multiple (MOIC)
- Total distributions to LPs divided by the capital they contributed. 2.0x means they doubled their money before considering how long it took.
- Whole-fund vs deal-by-deal
- Whole-fund (European) waterfalls pay carry only after the whole fund clears its hurdle. Deal-by-deal (American) waterfalls pay carry on each exit and rely on a clawback later.
- Clawback
- A promise that the sponsor returns carry it was overpaid earlier if the fund as a whole falls short. Only as good as the sponsor's ability to pay it.
Educational disclaimer: Outputs are simplified educational estimates built from the numbers you enter — they are not financial, legal, tax, or investment advice, and real decisions deserve verified figures and qualified professionals.