Customizable Carried Interest Waterfall Excel Template

Customizable and powerful template for carried interest calculations for private equity projects

by Alex Martyanov
Professional Private Practice - Financial ModelingFollow 67

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Description
This module allows calculating of carried interest payments with high customization:

- fully customizable hurdle rate, preferred return, carried interest and clawback provision
- monthly, quarterly, semiannual or annual payment schedule
- detailed monthly (quarterly, semiannual or annual) cash flows for General Partners (GP) and Limited Partners (LP)
- calculating of IRR for the project, GP and LP
- calculation of preferred returns for LP
- catch-up calculations for LP
- flexible setup of project cash flows

This module could be used as a stand-alone tool for valuation and building of a distribution waterfall for a project/investment. Or this module could be integrated into financial models as a framework for investment distribution.

More on distribution:
In a private equity fund, the general partner manages the committed capital of the limited partners. The GP usually commits some amount to the fund, usually 1 to 2% of the commitment. When distributing the capital back to the investor, hopefully with an added value, the general partner will allocate this amount based on a waterfall structure previously agreed in the Limited Partnership Agreement.

A waterfall structure can be pictured as a set of buckets or phases. Each bucket contains its own allocation method. When the bucket is full, the capital flows into the next bucket. The first buckets are usually entirely allocated to the LPs, while buckets further away from the source are more advantageous to the GP. This structure is designed to encourage the general partner to maximize the return of the fund.

Note: Works on Excel 2010 & Above

This Best Practice includes
One Excel Waterfall Model