Trouble understanding basic waterfall
Why is the sponsor percentage of cash flows 19% in Hurdle 2?
If the promote in hurdle 2 is 10% ... why is the sponsor percentage of cash flows not 20% (10% initial GP contribution + 10% GP promote)
Sorry for dumb question.
because the sponsor's 10% LP stake gets diluted to pay the promote. Think about the equity contributions as A shares and the promote a B shares. Any payment to B shares has to be at the expense of A shares, so the 10% promote to B shares gets paid for 90% by the investor and 10% by the sponsor. Total sponsor payment is promote + diluted LP stake
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