medium · Private Credit fund-structures-returns-economics

In the context of private credit fund economics, what is the primary purpose of a 'GP Catch-Up' provision in the distribution waterfall?

1. To allow the GP to receive their full share of total profits once the hurdle rate is achieved
2. To ensure the GP's co-investment amount remains exactly equal to 5% of the total committed fund size
3. To compensate the GP for management fee discounts offered to the fund's earliest LP investors
4. To adjust the preferred hurdle rate upward whenever the SOFR benchmark rate increases

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