Private Equity Waterfalls: The Truth About Pref, Catch Ups & Clawbacks

Описание: In this episode of Mechanics of Money, Sam Silverman dissects Private Equity Waterfalls, revealing how the catch-up provision, clawback terms, and distribution splits determine your actual take-home returns.

We break down the exact flow of capital, from Preferred Return to Return of Capital, and model a specific mathematical scenario where a "Full Catch-Up" clause costs an investor $48,000 on a single deal compared to a fairer structure. Sam details how these mechanics shift between asset classes, contrasting how waterfalls function in Real Estate (cash flow focused) versus Private Equity (exit focused).

Sam also explains the "Trust" gap in private markets, specifically regarding Clawback Provisions. He outlines why a clawback that exists on paper often fails in reality due to tax complications and lack of escrow, and provides the 5-point Due Diligence Checklist you need to vet a sponsor's alignment before you sign.

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⏱️ TIMESTAMPS:
00:00 - Introduction: The Waterfall is Where Incentives Live
00:45 - The Skeleton: Visualizing How Money Flows Down
02:00 - Asset Class Wars: Real Estate vs. PE vs. Credit Waterfalls
04:00 - The "Catch-Up" Trap: How the Sponsor Gets Paid 100% of Cash Flow
06:00 - Clawbacks: Why "Supposed To" Doesn't Mean "Will"
07:30 - The Math: Calculating the $48,000 Cost of a Bad Structure
09:00 - Due Diligence: 5 Questions to Ask Before Signing
10:15 - Summary & Next Episode (Capital Calls)

Disclaimer: The content provided in this podcast is for informational purposes only and does not constitute financial or investment advice.