“American” Style Waterfall Clause
(Private Equity Fund)


Summary

This waterfall distribution clause for private equity fund (PEF) limited partnership agreements addresses how capital is distributed from a PEF pursuant to the “American” style. Since PEF investors do not generally have the right to voluntarily withdraw capital, the waterfall provision addresses the key issues of (a) the priority and timing of the return of capital contributed by investors (as well as any associated profits thereon) and (b) the allocation of performance compensation (the “carried interest”) to the manager. In the American style (often called a “deal-by-deal” or “investment-by-investment”) waterfall, each time an investment is liquidated, the distribution passes through the waterfall separately. This means that the manager may receive distributions of carried interest as each investment is liquidated, rather than after investors have received distributions equal to 100% of their invested capital (and preferred return). (See the “European” Style Waterfall Clause (Private...