This waterfall distribution clause for private equity fund (PEF) limited partnership agreements addresses how capital is distributed from a PEF pursuant to the “European” 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 European style waterfall, investors must receive 100% of their capital contributions plus a “preferred return” before the investment manager receives any performance compensation. (See the “American” Style Waterfall Clause (Private Equity Fund) for an alternative, which provides that each investment passes through the waterfall separately, creating the potential for performance compensation to be paid each time an investment is liquidated.) This clause ...