Preferred Return Template with Multiple GP Catch-up Options

I've come across a new way to set up joint venture funds that I've never modeled before. In this template, there are now multiple tiers for GP catch-up. You can use either one or both and see how it effects LP returns / GP distributions / promote, and final IRR.

$75.00 USD

After purchase, the template will be immediately available to download. It is also included in the joint venture bundle and The Super Smart Bundle.


preferred return model

The reason for this being a separate version was a result of the following client request: They wanted to have a pref. paid to the LP, then 100% of the LPs initial investment paid back (100% of cash flow going to the LP until those criteria were met) and then a catch-up for the GP until the GP received 20% of the total distributions up to that point. Total distributions at that point would be the total pref. paid plus initial capital investment repayment. 100% of cash flow goes to get the GP caught up to that distribution rate and then after this criteria is met, the remaining cash flow is split 20% to GP, 80% to LP.

I had one of the templates in the SmartHelping Plus template library that would have fit the client need IF the catch-up hit prior to the LP getting 100% of their investment back, but in this case the catch-up didn't start until after that repayment hurdle. So, this model is the result of that logic implementation. There is now a catch-up for the GP that can be selected (yes/no selector) that goes into effect after the LP receives 100% of their investment back, but before the final distribution split.

Template Functionality:
  • Define preferred return rate.
  • Define the contribution rate of the GP and LP.
  • Define contributions / distributions per period.
  • Define if the pref. accrues or not.
  • Define if the pref. compounds or not.
  • Define if distributions above the pref. go towards reducing the LP capital basis or not.
  • Define if the GP will be caught up to the LP after the pref. tier is completed.
  • Define if the GP will be caught up to the LP after the LP receives all their investment back or not.
  • Output: IRR and Equity Multiple for both GP and LP if applicable.
  • Each GP catch-up is optional and has its own yes/no selector.
For each catch-up, the thing the GP is being caught up to is the distribution rate in tier 1 and tier 2 against the total cash flows that have been distributed to the LP prior to those tiers being entered. It forces all the cash flow to go to the GP until they reach the tier 1 or tier 2 distribution rate. After the catch-up is satisfied, cash moves into the distribution rate for both the LP/GP per the defined rates for the tier. If you wanted to catch the GP up to a smaller distribution rate than what is defined in the hurdle rates, you could do that by referencing a separate percentage rate that you input into a different cell and just reference that in the GP catch-up sections for 'total due'.

This model is based on 10 total periods, so that means annual views. If you wanted to make it a monthly view, you could extend the logic in the last column over (dragging all formulas in the last column), make sure your IRR and Equity Multiple formulas go over to capture the total number of columns in use, and then adjust the annual preferred return rate to a monthly rate by dividing the annual rate by 12.