Worksheet – waterfall distribution and impact of sponsor promote
For example, if an investor contributes $1 million in year 0 and receives a capital distribution of $1.2 million after year 10—along with paying fees totaling $100 thousand—the fund’s value for year 10 would then be calculated as follows:
$1 Million Investor Contribution + ($1.2 M – ($1M + $100k)) = 1.2M * 1.10 = $1.32M
This would mean that the fund has achieved its 10% hurdle since 1.32 million is greater than 1 million plus 100 thousand which represents the original investment and accumulated fees respectively; thus, it can now proceed with distributing carried interest according to pre-agreed terms outlined in its documents.
It is important to note that the above calculation does not take into account any additional costs such as management fees, salaries, or other expenses that may have been incurred over the course of year 10. In order for a more accurate assessment of the fund’s value, these must be factored in as well. Additionally, it should be noted that some funds set higher hurdles than 10% which would require adjusting the above formula accordingly.