Catch-Up
Private Credit glossary · Fund Structures, Returns & Economics
Definition
Distribution phase in which the GP receives 100% of profits (or a high share) until the agreed carry split is restored after LPs are paid the preferred return.
Catch-Up in plain English
After investors get paid their guaranteed minimum return (the hurdle) in a fund, there's a quick "catch-up" moment where the manager grabs most or all of the next profits until the agreed profit-split is back on track. Why? The investors got a head start with that guaranteed return, so the catch-up lets the manager collect their fair share of profits before both sides settle into normal splitting. Picture two people splitting a pizza 80/20, but one person ate the first two slices as a promised appetizer — the catch-up is the other person then eating a few slices in a row until the whole pizza actually works out to the 80/20 deal they agreed on.
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