Key Takeaways
- The preferred return protects LP downside—in all scenarios, LPs receive their 8% pref before GP earns any promote.
- GP returns are highly leveraged through promote tiers—GP equity multiples range from 2.15x to 6.46x across scenarios.
- Small changes in project-level returns create large swings in GP economics due to waterfall tier thresholds.
- Fees (acquisition, asset management) provide GP compensation even in downside scenarios, creating potential misalignment.
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Test Your Knowledge
1.In a typical syndication waterfall, what is the first priority of cash distributions?
2.How does a GP promote (carried interest) work?
3.Why is the acquisition fee a source of potential GP/LP misalignment?