The contractual mechanism—set out in the fund’s LPA or Operating Agreement, typically under a “Distributions” section—that defines the order and priority in which cash is distributed among LPs and the GP. A typical waterfall moves through the following steps: (1) return of capital to LPs, (2) preferred return to LPs, (3) GP catch-up, and (4) residual split of profits between LPs and the GP. See also: American Waterfall, European Waterfall.
Waterfall
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