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Waterfall & carried interest calculator

Model how a distribution splits between LPs and the GP through return of capital, preferred return, catch-up and carry.

A distribution waterfall is the order in which proceeds are split between investors and the manager: capital returned first, then a preferred return to investors, then a GP catch-up, then the ongoing carry split on everything after. Enter a distribution amount and terms below to see exactly how it splits.

Terms

Capital contributed $10,000,000

Distribution to waterfall $28,000,000

Preferred return (annual) 8%

Years elapsed 5

GP catch-up 100%

Carry split (GP) 20%

How the distribution splits

1. Return of capital—

2. Preferred return to LPs—

3. GP catch-up—

4. Remaining carry split—

Total to LPs—

Total to GP (carry)—

Effective GP take rate—

This calculator is for general illustration only. It ignores taxes, fund-specific mechanics and edge cases in your actual documents. It is not financial, legal or tax advice — check figures against your fund's actual governing documents.

How this model works

This is a simplified European (whole-fund) waterfall: capital is returned in full, then the preferred return accrues on contributed capital before any catch-up begins. Preferred return here compounds annually on the full contributed capital over the years elapsed — real fund documents often calculate it in more granular, date-specific ways on each individual capital call, so treat this as illustrative rather than a substitute for your actual LPA mechanics.

The catch-up lets the GP "catch up" to its full carry percentage on the profit distributed so far. At a 100% catch-up, the GP receives distributions until its share of (preferred return + catch-up) equals the stated carry percentage of total profit distributed to that point; a lower catch-up percentage slows that recovery, leaving LPs with more of the early profit. After the catch-up tier is satisfied, all further distributions split at the stated carry percentage. More on waterfall mechanics and what's negotiable →

Frequently asked questions

What is a distribution waterfall?

The order in which fund distributions are split between investors and the manager: return of contributed capital first, then a preferred return to investors, then a GP catch-up, then an ongoing carry split on everything distributed after.

What is a GP catch-up?

A waterfall tier where the manager receives a disproportionate share of distributions after the preferred return has been paid, until the manager's cumulative share of profit reaches the stated carry percentage. A 100% catch-up reaches that percentage fastest; a lower catch-up percentage shares more of the early profit with investors.

What is the difference between European and American waterfalls?

A European waterfall calculates the tiers across the whole fund, so all capital and preferred return must be returned before any carry is paid on any deal. An American (deal-by-deal) waterfall calculates tiers per investment, letting the manager earn carry on individual profitable deals before the whole fund has returned capital.

Why does the preferred return matter so much to LPs?

It ensures investors receive a minimum return on their capital before the manager participates in profits at all, which aligns the manager's incentive with actually delivering returns above a baseline rather than merely deploying capital.

Is this calculator's preferred return calculation exactly what my fund documents use?

No — this is a simplified illustration compounding on total contributed capital over an average holding period. Real limited partnership agreements typically calculate preferred return on a call-by-call basis with exact dates, which this tool does not replicate.

What carry percentage is standard?

20% is the most commonly cited reference point in private equity and venture, though it varies by strategy, fund size, and market conditions, and is genuinely negotiable — particularly for first-time funds. Hedge funds and other strategies use different conventions entirely.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

Fund terms and feesThe full mechanics behind this calculator, including what's negotiable.Co-investmentHow co-invest terms sit alongside standard fund economics.GlossaryDefinitions for every term used in this calculator.

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