How to structure fund waterfall?

Hi everyone,

I am genuinely looking for advice here. My former colleagues and I have started investing in a very niche strategy in real estate (CEE region) and have invested $50 million in the past three years with backing from a single investor. He is now looking to retire from the business, and we are looking to start a fund using this strategy.

However, we are unsure of how to approach the terms of such a fund. TL;DR:

  1. The strategy returns 30-50% p.a.; however, due to the extreme niche, there is a capacity limit at around $150 million, so it is not very scalable.

  2. The underlying asset class is real estate, but liquidity per asset is around a year, so structuring it as a private fund with a finite period does not seem right to us.

To be frank, we would like to find a way to create an LP-friendly product that makes sense for us. We could just use our own money, but we would leave a lot of the market untapped. We are not fond of the "2/20" structure, as due to the high profitability of the strategy, we would forfeit a lot of the upside.

We are thinking of something along the lines of a 10% p.a. hurdle rate and a 70 GP / 30 LP split afterward, though I can imagine a lot of LPs will throw us out the window with this proposal.

So basically, are there some funds/partnerships facing similar issues that have solved this to the satisfaction of all parties, or are we just greedy and should trade a potentially higher capital base for a lower % payout?

Open to any ideas. Thanks a lot.

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