Understanding Waterfalls & Promote

How cash flows are split between LPs and the sponsor across preferred return hurdles.

Waterfall Basics

Most structures pay a preferred return first, return of capital next, and then share remaining cash based on promote tiers (e.g., 70/30 up to 15% IRR, then 60/40).

Alignment and Clarity

Clear, well‑documented waterfalls align incentives and reduce disputes. Always review the exact language in the Operating Agreement.