Waterfall Model Help
I'm doing a take home case study that includes a waterfall model with 2 hurdles.
10/90 until 10% IRR
20/80 until 20% IRR
30/70 after 20% IRR
There is one large initial funding at time zero, and a handful of small capital calls in later months.
Everything looked good, and when I submitted the MD who's interviewing me he said it was good start, but said to revise and "assume that the Sponsor's original 10% co-invest is part of the LP's tranche in the waterfall."
The only thing I could make this out to mean is to take the initial funding and attribute it all to the LP, leaving the LP with a crazy disproportionate share of the equity invested (the GP would now only contribute 10% of the later capital calls), but keeping the distributions the same, resulting in a wildly high IRR and Equity multiple for the GP.
Is there any other way I could interpret his comment?
Can attach version of the model if needed.
EDIT: Models Attached. #1 is model before his comments, #2 is the changes I made in response to his comments
| Attachment | Size |
|---|---|
| pre comments 119.23 KB | 119.23 KB |
| post comments 119.45 KB | 119.45 KB |
that sounds right.
Is this common? I'm getting like a 1800% IRR for the GP. Seems strange.
if you don't put in equity, then yes your returns are unlimited
Attach your model if possible as that doesn't sound right to me.
Just attached the pre and post comment versions. Yea it didn't sound right to me either but for the life of me can't figure out what else he could mean.
Don't show GP IRR, only show Total GP Profits under this scenario
what he is saying is that the “80/20” and “70/30” are promotes, and not splits. so the promotes are based off the members pro rata interests.
so, a 20% promote on a 90/10 is 80% * 90% = 72% to the LP and 28% to the sponsor.
Distinctio dicta saepe iste magnam soluta. Est aut asperiores omnis.
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