GP catch-up
Also called Catch-up, General partner catch-up
A GP catch-up is the tier of a distribution waterfall in which the fund manager receives a disproportionately large share of distributions, after investors have received their preferred return, until the manager has reached its agreed overall share of profits.
Without a catch-up, a manager entitled to 20 percent of profits would receive 20 percent only of the profits above the preferred return, and nothing on the preferred return itself. The catch-up tier corrects this by routing most or all distributions to the manager for a period, until the manager holds its full agreed percentage of total profits.
Catch-ups are usually described by their rate. A 100 percent catch-up sends everything to the manager during that tier and resolves quickly. A 50 percent catch-up splits the tier and takes longer to complete, which is more favourable to investors.
The catch-up is the tier most often skimmed in a summary document and it materially changes what investors receive at moderate performance levels. It is worth reading in the partnership agreement rather than the deck.
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