Naming Components in Private Equity Distribution Waterfalls
Summary
The document asks what to call the individual steps in a fund distribution waterfall, as described in a limited partnership agreement. It considers “phase,” “provision,” and “tranche,” seeking a general term that would make sense across varied agreements rather than a name for a particular step such as a catch-up or clawback.
The response offers no universal label. Based on private equity experience, it recommends titling the overall display as a cash flow waterfall and naming each component according to the cash flow it describes—for example, distributions up to subscribed capital, up to a hurdle, or through a management catch-up. This is practical naming guidance, not a formal industry standard. The document provides no broader survey of agreement language, and terminology may depend on the specific LPA and audience.
Key ideas
- The document does not establish a universal term for every waterfall component.
- The response suggests naming components by the cash flow stage or provision they represent.
- Terms used for a particular component can depend on the relevant partnership agreement.
Tags
Full text
# Standard term for the components of a distribution waterfall?
# Standard term for the components of a distribution waterfall?
I'm writing software for calculating distribution waterfalls. When displaying the results of a particular calculation, I want to show amounts that correspond to specific provisions in the relevant LPA. When showing the distribution waterfall structure for a fund or other entity, I'd like to title the list of components of that structure. Is 'provision' the relevant term? Or is there another term that is used for these components?
My team is currently using the term 'tranch' ('tranche') internally, and it seems to at least roughly correspond to how that term is used, but it doesn't seem to be used when describing waterfalls.
Note that I'm not asking about a term or phrase for particular (standard) provisions, e.g. 'recovery phase', 'catchup phase', 'clawback'. I would like to know if a term (or phrase) covers all such possible components in general. The intended audience handles a wide variety of agreements with many different types of components, so I'd like to know of a term they'd recognize and readily understand.
Some candidates:
- Phase
- Provision
- Tranche
## Answer by phdstudent (score 2)
https://quant.stackexchange.com/a/18983
It depends on what the LPA stipulates. I worked in PE for couple of years and we would title the cash flow waterfall as "Cash-flow waterfall" and then name each component accordingly (e.g. Total released cashflow, investors cashflow up to subscribed capital, Investors up to hurdle, Mangt Company up to catch-up, etc.)Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.