Can someone explain what a "pure promote" is in a waterfall structure? I know what a promote is. If the sponsor hits the defined hurdle then they begin to receive a larger % of profits. But I do not understand what is meant by "pure promote". For example, here is where I have seen the term used in a waterfall description:
85% LP / 15% GP 8.5% Preferred Return First Tier Promote: 68% LP / 32% GP (20% pure promote) Second Tier Promote: 60% LP / 40% GP (30% pure promote)
Thanks
The promote is the percentage of the Lp's prorata cf that they shift to the GP.
20%*85%= 17%.
GP Share = 15%+17%= 32%
What is the difference between "promote" and "pure promote"?
I believe "pure" is defining that there is no catch-up provision and the GP only receives carry on gain in excess of the preferred return hurdle.
https://www.duanemorris.com/site/static/private_equity_fund_distributio…
dont over complicate it...by pure it's just added nomenclature to define that the 20% is 100% of the promoted piece. meaning in that hurdle per your example, the GP gets 32%, of which 20% is pure promote...aka 100% of the promoted interest.
has nothing to do with catch ups, claw backs, or any other "special type of promote". If it did, one thing to look for is if it is bold and in quotes...if so, I'd say maybe check the definitions section to see how it's defined outside a tear off term sheet.
Simply, I think theyre just illustrating the % of the net return to the GP that is the promoted interest.