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๐๐ข๐ฌ๐ญ๐ซ๐ข๐๐ฎ๐ญ๐ข๐จ๐ง ๐จ๐ ๐ฉ๐ซ๐จ๐๐ข๐ญ๐ฌ ๐ฐ๐ข๐ญ๐ก๐ข๐ง ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐ ๐ฎ๐ง๐๐ฌ ๐พ๐๐๐๐๐๐๐๐ ๐๐๐๐๐๐ ๐๐๐๐๐๐๐ย serve as structured frameworks for distributing cash flow profits within investment funds, typically delineating hierarchical distribution provisions. These methodologies establish the economic relationship between fund managers (GP) and investors (LP). Within the investment industry, two common approaches to profit sharing are the European and American waterfall methods. ๐ฌ๐๐๐๐๐๐๐ ๐พ๐๐๐๐๐๐๐๐ ๐ด๐๐๐๐๐ In this method, profits from the entire fund are considered for distribution. GP's receive carried interest only after ensuring the preferred return and catch-up provision for the total fund have been met. This approach tends to be more advantageous for investors/Limited Partners. ๐จ๐๐๐๐๐๐๐ ๐พ๐๐๐๐๐๐๐๐ ๐ด๐๐๐๐๐ This method distributes profits on a deal-by-deal or individual investment basis. If a profit is generated from the sale of an investment and exceeds the preferred return, GP's can claim carried interest or an incentive fee. This approach is typically more beneficial for General Partners/Fund Managers. While each fund may have its specific provisions and terms, the general hierarchy of cash flow distribution typically includes: ๐ข) ๐๐๐ญ๐ฎ๐ซ๐ง ๐จ๐ง ๐๐๐ฉ๐ข๐ญ๐๐ฅ This refers to the capital contributed by investors. Initially, all contributed capital should be returned to the investors. ๐ข๐ข) ๐๐ซ๐๐๐๐ซ๐ซ๐๐ ๐๐๐ญ๐ฎ๐ซ๐ง The preferred return is the minimum return payable to investors before profits can be shared between GPs and LPs. It's a predetermined percentage that must be paid to investors. Any remaining funds beyond this percentage are distributed between GPs and LPs. ๐ข๐ข๐ข) ๐๐๐ญ๐๐ก-๐ฎ๐ฉ This clause, often outlined in the Private Placement Memorandum (PPM), facilitates profit distribution to fund managers after the preferred return has been disbursed to investors. Catch-up typically involves a fixed percentage on the preferred return. ๐ข๐ฏ) ๐๐๐ซ๐ซ๐ข๐๐ ๐๐ง๐ญ๐๐ซ๐๐ฌ๐ญ Carried interest represents a share of profits from a private equity or hedge fund, serving as compensation or incentive for General Partners. It's the performance fee paid to GPs. ๐ฏ) ๐๐ซ๐จ๐๐ข๐ญ๐ฌ ๐ญ๐จ ๐๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ๐ฌ Once all provisions are met, any remaining profits from the fund are distributed to the investors. #Finance #stockmarkets #JPMorgan #MorganStanley #CreditSuisse #GoldmanSachs #axa #anz #wns #bnymellon #citco #citibank #deutschebank #fis #jpmorganchase #imarticuslearning #northerntrust #statestreet #wellsfargo #operations #mumbai #delhi #chennai #bengaluru #pune #investment #help #career #job #opportunites #interviews #InvestmentBanking #bonds #derivatives #jobs #hiring
