Waterfall outlines when a General Partner (GP) actually receives performance fees
- European waterfall
- American waterfall
A European waterfall is advantageous to the limited partner (LP)
- All of the capital is returned to the LP as deals are exited
- LP receives its original investment + a return equivalent to a hurdle rate before the GP receives any performance fees
An American waterfall is advantageous to the general partner (GP)
- performance fees are collected on a deal by deal basis
- More details in video #14