medium · Private Credit & Debt fund-structures-returns-economics

In a standard private equity distribution waterfall with an 8% preferred return and a 20% carried interest with a 100% GP catch-up, what is the specific function of the 'catch-up' tier?

1. To recover management fees that were paid during the investment period.
2. To ensure the Limited Partners receive an additional 20% of the remaining proceeds after the hurdle is met.
3. To allow the General Partner to receive 100% of distributions until their total profit share equals 20% of the total profits distributed to that point.
4. To return 100% of the initial capital to the Limited Partners before any profit sharing.

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