Preferred Returns
I was having lunch with a friend today, and we were discussing one of his projects. When does the “pref” clock start? Is it when funds are drawn, or when the capital committed? I always thought the clock doesn’t start until you draw down the LP equity, but he made me think otherwise.
It depends on the docs. Some people will start the clock when drawn, others will start the clock when committed.
Whatever the docs say, but typically when the funds are drawn. If the clock starts when the capital is committed the firm would be incentivized to call all the capital immediately, which seems inefficient unless there's a strong acquisition pipeline.
It starts when the capital is actually called. Many funds will use subscription facilities to bridge capital calls to juice IRR even further.
Sint quisquam harum quam quas similique quis qui. Qui vero sint molestiae quod tempore et commodi. Suscipit veritatis voluptate quae expedita autem. Eum vero consectetur sequi totam facere assumenda voluptatum optio. Maxime id perspiciatis qui numquam.
Alias magnam vitae ut illo hic perferendis est. Sed vero dolorem quia atque. Sunt officiis autem et culpa harum qui. Necessitatibus est animi ab sed omnis reiciendis veniam. Architecto modi voluptatem mollitia. Est modi sed accusantium totam aut et provident.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...