Update to Preferred Return Template: Adding a Second Profit Share Distribution Tier

I had a few clients request a second profit share hurdle that is triggered by the LPs equity being fully repaid. The update is added as an upgrade version that you have the option to purchase separately.

Updated Template: Preferred Return Model

No logic was lost in this template, you only have an extra option to choose from now, which is important when trying to model joint venture deals that have a preferred return.

Logic Feature Added:

  • Configure a second hurdle split between the GP/LP.
  • This second hurdle only kicks in once the LP has had their full equity repaid.
  • The first hurdle is the preferred return (and if there is any accrued / unpaid due, which is also configurable)
  • Any cash available after the preferred return has been satisfied is split at the first pre-defined rate between the LP and GP. The change, is that now if equity is repaid, cash is split at a second profit share rate, which is going to be a greater percentage for the GP.
What is the point of the update?

The main reason why GPs want this functionality is that they want to offer the LP a higher share of cash flows until the LPs investment has been paid back, and instead of continuing to split cash at the initial rate after that, the GP wants a promotion in their cash flow (fully dependent on the LP being satisfied).

This update took me about 1.5 hours to do.

Note, if you don't care about the second hurdle, you can always make the second profit share tier the same as the first.

I've further updated this with a new version that has multiple GP catch-up options.