Some of you might know me as the guy who turned up here yesterday looking for help on an underwriting model. I now have a query on what must be the least fun thing to model: a waterfall distribution at fund level. Something that is different from other examples I've seen: capital is contributed and distributed on intermittently throughout the life of the fund (i.e. in month 6, $1M is contributed, and $0.5M is distributed - and I'm struggling to reconcile this.
In particular, terms for tiers 4 and 5 of the waterfall state the following:
- Tier 4: 20% to GP and 80% to LP until the LP has received a **1.80X ** equity multiple on total LP invested capital
- Tier 5: 100% to GP and 0% to LP until the Manager has received an amount equal to 20.0% of the fund net profit through such period
Does anyone have experience mixing the 'metrics' within an IRR in the above way? Would you be willing to share any insights? In particular I'm struggling to combine and compare the IRR and equity multiple in Tier 4.
I'm not seeing where the IRR is in this case. Seems to be a waterfall based off of MOICs with a catchup clause built in on Tier 5. There is no time value of money concept in the 2 tiers you've described above.
For catchups, just write it out as a simple linear algebra equation and figure out what the fraction would have to be off of the preceding tiers.
You shouldn't be having to combine anything regardless of what each tier accrues based off of.
Figure out how much cash flow is available to tier 4, distribute only to the LP until you clear that capital account, then make the residual cash flow avaiable to tier 5, and repeat
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