medium · Private Equity pe-core
A $200m fund has an 'American' (deal-by-deal) waterfall. The GP realizes a $40m profit on the first deal and takes $8m in carry (20%). The second deal results in a $50m loss.
If the fund has a 'Clawback' provision, what is the GP's obligation after the second deal?
- Nothing is owed, since the $8m carry was earned on a profitable deal.
- The GP must personally contribute $10m to the fund to offset the loss.
- The GP must return only $2m of the carry, prorated to the second deal's net loss.
- The GP must return the $8m carry because total fund profit is now negative.
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