Читать книгу Alternative Investments - Hossein Kazemi - Страница 49

Limited partnerships, including private equity funds and hedge funds, have provisions for the allocation of cash inflows between general partners (GPs) and limited partners (LPs). Provisions related to the distribution waterfall are often the most complex parts of the limited partnership agreement. The waterfall is a provision of the limited partnership agreement that specifies how distributions from a fund will be split and how the payouts will be prioritized. Specifically, the waterfall details what amount must be distributed to the LPs before the fund manager or GPs can take a share from the fund's profits.

One important reason LPs need to understand the distribution waterfall is because of its impact on managerial incentives and, consequently, on the behavioral drivers of the fund's performance. Familiarizing themselves with the design of the waterfall's terms and conditions is one of the few opportunities LPs have to anticipate and manage risk. The waterfall's design always produces effects (sometimes unintended ones) as it drives the motivation and attitude, sense of responsibility, accountability, and priorities of fund managers.