Private Equity & Fund Accounting
PE European Waterfall, GP Catch-Up & Carried Interest Formula
Calculate Limited Partner and General Partner distributions across all four European Waterfall tiers: Return of Capital, Preferred Hurdle, 100% GP Catch-Up Tranche H * c / (1 - c), and 80/20 Carried Interest.
Avoid the #1 fund-waterfall bug on the 100% GP Catch-Up tranche!
In a whole-fund ("European") Private Equity distribution waterfall on Contributed_Capital I_0 with Cumulative Preferred Return Dollar Hurdle H_pref and GP Carried Interest Share c_carry (typically 20%), proceeds W_dist flow through four strict tiers: (1) Tier 1 Return of Capital: MIN(W_dist, I_0) to LPs; (2) Tier 2 Preferred Return: MIN(MAX(0, W_dist - I_0), H_pref) to LPs; (3) Tier 3 100% GP Catch-Up: GP receives 100% of dollars above I_0 + H_pref until GP holds c_carry of ALL cumulative profit (H_pref + CatchUp)! Look at the algebra trap that trips analysts: Full Catch-Up is NOT c_carry * H_pref (20% * H_pref gives GP only 20 / 120 = 16.67% of profits!)—solving GP / (H_pref + GP) = c_carry proves Full Catch-Up equals (c_carry / (1 - c_carry)) * H_pref (e.g., 0.20 / 0.80 = 25.0% of H_pref)! (4) Tier 4 Residual Split: every dollar above I_0 + H_pref / (1 - c_carry) splits (1 - c_carry) to LPs and c_carry to GP!
Try it on Contributed_Capital I_0 = $100.00M (B2), Preferred_Profit_Hurdle H_pref = $24.00M (e.g., cumulative 8% hurdle, B3), GP_Carry_Rate c_carry = 0.20 (20.0%, B4 -> Full Catch-Up Cap = (0.20 / 0.80) * 24.00 = $6.00M at Total Distribution $130.00M!), and Total_Exit_Distributions W_dist = $160.00M (Total Profit = $60.00M, B5): GP Catch-Up Tier pays $6.00M (E2); Residual GP 20% Carry on ($160M - $130M) pays $6.00M -> Total GP Carried Interest = $12.00M (exact 20.0% of $60.00M total profit, E3!); LP Net Distribution is $148.00M (E4); and LP Net Multiple is 1.4800x (E5)! Test partial catch-up at W_dist = $127.00M: LPs get $124.00M and GP gets $3.00M partial catch-up! In a shared Arte Sheets fund-admin workbook, let a suggester propose E3 and ask the in-app Pro Assistant for a hint: "Verify why GP Catch-Up equals H * c / (1 - c) rather than H * c so GP reaches exact 20% of total profit."
| European Fund Waterfall Tier (I_0=$100M, H_pref=$24M, Carry=20%, W=$160M) | Formula | Verified Output |
|---|---|---|
| GP Full Catch-Up Cap ($M) | (c_carry / (1 - c_carry)) * H_pref | $6.00M (Reached at W = $130M) |
| Actual GP Catch-Up Paid ($M) | MIN(Cap, MAX(0, W_dist - I_0 - H_pref)) | $6.00M ($3.00M if W = $127M) |
| Total GP Carried Interest ($M) | CatchUp_Paid + c_carry * MAX(0, W - I_0 - H/(1-c)) | $12.00M (20.0% of $60M Profit) |
| LP Net Distribution & Net TVPI | W_dist - GP_Carry; LP_Dist / I_0 | $148.00M (1.4800x Net TVPI) |
Four-Tier European GP Carried Interest Formula (100% Catch-Up)
Validate I_0 > 0, H_pref >= 0, 0 <= c_carry < 1, and W_dist >= 0!
=LET(in_0, B2, hr_p, B3, cr_g, B4, wd_t, B5, IF(OR(in_0 <= 0, hr_p < 0, cr_g < 0, cr_g >= 1, wd_t < 0), "Invalid Waterfall Terms", LET(cu_cp, (cr_g / (1 - cr_g)) * hr_p, cu_pd, MIN(cu_cp, MAX(0, wd_t - in_0 - hr_p)), rs_gp, cr_g * MAX(0, wd_t - in_0 - hr_p - cu_cp), ROUND(cu_pd + rs_gp, 2))))LP Net Distribution & Net Multiple (TVPI) Formula
Test below-hurdle performance at W_dist = $115.00M (< $124.00M): GP Carry equals $0.00M and LPs sweep 100% ($115.00M)!
=IF(ISTEXT(E3), E3, ROUND((B5 - E3) / B2, 4))Try the example
Use the original values or change them to test your understanding.