The GP catch-up explained with real numbers
The catch-up is the waterfall tier that redirects post-hurdle proceeds to the general partner until its cumulative distributions equal its carry percentage of cumulative profit distributions. It is not a fixed amount and not a rate applied to proceeds: it is the solution to an equation. At a 20% carry with $8,000,000 of preferred return already paid, the catch-up resolves to $2,000,000, after which the general partner holds 20% of the $10,000,000 distributed.
Who this is for. You are building the tier-three row of a waterfall model, or arguing about a catch-up rate in a term sheet, and you need the equation the tier actually solves rather than a description of what it is for.
What the tier is solving for
The catch-up sits between the preferred return tier and the residual split. Its job is arithmetic: the preferred return has just paid a block of profit entirely to limited partners, and the residual tier is about to split profit at the carry ratio. Without an intervening step the general partner would end the distribution holding less than its stated percentage of the profit paid out, because it received none of the preferred return block. The catch-up closes that gap and stops.
So the tier is defined by its target rather than by its size. It runs until the general partner's cumulative distributions equal the carry percentage of cumulative profit distributions to date — which means the amount is whatever satisfies that identity, and the identity is a one-line equation. Writing it out is the difference between a model that reproduces the agreement and a model that approximates it.
Let P be the profit distributed before the catch-up opens — in the ordinary case, the accrued preferred return. Let c be the carry percentage and C the catch-up amount. The target condition is c x (P + C) = C, which rearranges to C = cP / (1 - c). At a 20% carry that is C = 0.25P: the catch-up is a quarter of whatever the preferred return tier paid. Metrick and Yasuda work exactly this case numerically — $2,000,000 of catch-up after an 8% hurdle was satisfied on $100,000,000, leaving the general partner with 20% of the $10,000,000 in total profit.
Two consequences follow immediately and both matter in negotiation. The catch-up scales with the preferred return, so conceding a higher pref rate enlarges the catch-up rather than shrinking the carry. And the catch-up is capped by the proceeds actually available, which is the case the worked example below spends most of its time on, because it is the case in which the general partner does not end up with its stated percentage at all.
The rate, and the two numbers that are actually sourced
The catch-up rate is the proportion of post-hurdle proceeds routed to the general partner while the tier is open. It determines how fast the target is reached, not whether it is reached: on a fund with enough proceeds, an 80% catch-up and a 100% catch-up both terminate at the same general partner position, and the difference is that limited partners keep receiving cash throughout the slower one.
Two rates appear in the sources verified for this domain. The ILPA Model LPA's own catch-up is 80% — a fact worth stating plainly, because the model document is routinely cited in support of a 100% catch-up it does not contain. United States drafting frequently uses 100%, and Preqin's formulation describes that case: once investors have received all returns up to the hurdle, the general partner receives all gains thereafter until its overall share reaches the stated carry rate.
Rates below 80% circulate widely in practice and appear in no source verified here. That absence is a fact about the evidence rather than about the market, and the honest treatment is to say so and to publish the arithmetic for any rate rather than a table of conventions nobody can check. Substituting the rate into the model is trivial once the target equation is written down; the rate changes the number of dollars per distribution, never the terminal condition.
A partial catch-up therefore buys limited partners cash timing and buys the general partner nothing except a slower path to the same place — unless the fund runs out of proceeds first, at which point the rate becomes a quantum term rather than a timing term. That conditional is the entire reason the rate is negotiated at all.
Hard hurdle, catch-up, and the vocabulary in between
A waterfall with no catch-up tier produces a hard hurdle: the general partner's carry applies only to the portion of profits exceeding the preferred return. ILPA states this position explicitly and recommends it, on the ground that basing carry only on profits above the preferred return fosters greater alignment of interest. A three-tier construction — return of capital, preferred return, residual split — is a hard hurdle by construction, whatever the term sheet calls it.
The complementary case, in which the preferred return operates as a gate and the general partner then catches up to its full percentage on all profits from the first dollar, is exactly what a catch-up tier produces. It circulates under a market label that no authoritative source in the private equity fund-terms literature defines; the label is hedge-fund vocabulary that migrated. The mechanic is sourced and the word is not, so this page publishes the mechanic.
The practical test is not the label but the tier list. Read the agreement's distribution section, count the tiers, and check whether any of them redirects a disproportionate share to the general partner after the preferred return is satisfied. If one does, the carry is computed on all profits. If none does, it is computed only on the excess. Two constructions, one question, and the answer is on the page in front of you rather than in the terminology.
Solving the catch-up, including the case where the money runs out
A $100,000,000 fund, fully drawn, with a 20% carry, an 8% preferred return and a 100% catch-up. Two distributions are modelled: the first where total profit is $10,000,000, reproducing the case Metrick and Yasuda work numerically; the second where total profit is only $9,000,000, so the catch-up tier exhausts the available proceeds before its target is reached.
Given
- Contributed capital
- $100,000,000
- Carry percentage (c)
- 20%
- Accrued preferred return at distribution
- $8,000,000
- Catch-up rate
- 100% — the United States drafting convention
- Scenario 1 total profit
- $10,000,000
- Scenario 2 total profit
- $9,000,000
| Step | Arithmetic | Result |
|---|---|---|
Write the target condition P is the profit distributed before the tier opens — here the $8,000,000 preferred return. At a 20% carry the catch-up is always a quarter of that block, whatever its size. | c x (P + C) = C, so C = cP / (1 - c) = 0.20 x $8,000,000 / 0.80 | C = $2,000,000 |
Scenario 1, tier two — pay the preferred return Capital has already been returned in tier one; these figures are the profit layer only. | $10,000,000 - $8,000,000 = $2,000,000 of profit remaining | $8,000,000 to limited partners |
Scenario 1, tier three — run the catch-up The target is met exactly at the moment the proceeds run out. This is the case the textbooks pick because the residual tier never opens and the arithmetic is short. | $2,000,000 required, $2,000,000 available, so 100% of it goes to the general partner | $2,000,000 to the general partner; $0 remaining for tier four |
Scenario 1, check the identity Which is what the tier was defined to produce. If this check fails, the catch-up was mis-specified. | $2,000,000 / $10,000,000 = 20% | The general partner holds exactly its carry percentage of profit distributed |
Scenario 2, tier two — pay the preferred return A fund one million dollars worse off. The preferred return tier is unaffected — it is a priority claim, not a share. | $9,000,000 - $8,000,000 = $1,000,000 of profit remaining | $8,000,000 to limited partners |
Scenario 2, tier three — the catch-up exhausts the proceeds The unmet balance is $2,000,000 - $1,000,000 = $1,000,000. Practitioners have a phrase for that balance; no authoritative source uses it, and no correction mechanism attaches to it inside the waterfall — the quantity is fully specified by the tier arithmetic, and if it matters it is because the carry was paid too early, which is what the clawback exists to fix. | $2,000,000 required, $1,000,000 available; catch-up paid = $1,000,000 | $1,000,000 to the general partner; the tier closes unsatisfied and tier four never opens |
Scenario 2, check the identity An 11.1% realised carry on a stated 20% deal. The catch-up does not guarantee the percentage; it only converges on it when there are enough proceeds to fill the tier. Any model that hardcodes 20% of profit as the carry line will be wrong on exactly the funds where being wrong is expensive. | $1,000,000 / $9,000,000 = 11.1% | The general partner holds 11.1% of profit distributed, not 20% |
Compare against a hard hurdle on the same numbers The catch-up is worth five times the hard-hurdle outcome in both scenarios, which is the ratio 1 / (1 - c) applied to the excess. That multiple is the reason the tier is negotiated harder than the carry percentage itself. | Scenario 1: 0.20 x ($10,000,000 - $8,000,000) = $400,000. Scenario 2: 0.20 x ($9,000,000 - $8,000,000) = $200,000. | $400,000 and $200,000 against $2,000,000 and $1,000,000 |
It reconciles
Scenario 1 ties: $8,000,000 preferred plus $2,000,000 catch-up equals the $10,000,000 of profit, and the general partner's $2,000,000 is 20% of it. Scenario 2 ties: $8,000,000 preferred plus $1,000,000 catch-up equals the $9,000,000 of profit, and the general partner's $1,000,000 is 11.1% of it. The difference between the two rows — $1,000,000 of profit — moved the general partner's realised carry from 20% to 11.1%, and moved the hard-hurdle comparison from $400,000 to $200,000. Every figure above is derived from the three inputs in the premise and can be reproduced with a calculator.
The example holds capital return, fees and expenses outside the profit layer so the tier arithmetic is visible. In a live model the return-of-capital tier frequently absorbs fees and expenses as well, which changes P and therefore changes the catch-up by a quarter of the change. Rerun it against your own agreement's tier one definition before relying on any figure.
Market phrases, labelled as such
Real market usage with no standard-setter behind it. No citation attaches to the phrase — only to the sourced mechanic underneath it, which is what this page publishes in its place.
"GP catch-up shortfall" for the unmet balance of the catch-up target
The phrase appears in no source verified for this domain. The quantity it names is real and fully specified by the tier-three arithmetic, but the headword is practitioner usage with no standard-setter definition behind it.
The tier arithmetic itself — required catch-up minus catch-up paid — cited to the model agreement's tier definitions, together with the observation that the correction mechanism for a general partner holding more than its entitlement is the clawback rather than anything inside the waterfall.
"Soft hurdle" for a preferred return that operates as a gate before a full catch-up
No authoritative source in the private equity fund-terms literature defines the term; it is hedge-fund vocabulary. ILPA defines and recommends only the hard hurdle, in which carry applies to profits above the preferred return.
The catch-up mechanic that constitutes it, cited to the model agreement's tier three, defined as the logical complement of ILPA's hard hurdle with the citation attached to the hard side only.
What this page will not tell you
What catch-up rate is market for a mid-sized buyout fund?
Verified: Two rates appear in sources verified for this domain: 80% in the ILPA Model LPA itself, and 100% in United States drafting as described by both a law-firm treatment and a data-provider glossary.
No number, because: No source verified here reports a distribution of catch-up rates by fund size, strategy or vintage. Rates below 80% are common in practice and evidenced nowhere in this library, so publishing a market range would mean citing a vendor blog and calling it evidence. The arithmetic works for any rate, so the page publishes the equation instead.
What to take away
The catch-up is the solution to an equation, not a rate applied to proceeds. At carry c and pre-catch-up profit P, the amount is C = cP / (1 - c).
At a 20% carry the catch-up is always a quarter of the preferred return block. Conceding a higher pref rate enlarges the catch-up rather than shrinking the carry.
The catch-up rate governs speed, not destination. On a fund with sufficient proceeds, 80% and 100% terminate at the same general partner position.
Two catch-up rates are sourced: 80% in the ILPA Model LPA itself, and 100% in United States drafting. The model document is routinely cited for a rate it does not contain.
The tier is capped by available proceeds. On the worked example's second scenario the general partner realises 11.1% on a stated 20% deal.
A model that hardcodes carry as 20% of profit is wrong on precisely the funds where being wrong is expensive.
Against a hard hurdle the catch-up is worth 1 / (1 - c) times the excess — five times, at a 20% carry. That multiple is why the tier is negotiated harder than the carry rate.
No catch-up tier means a hard hurdle, whatever the term sheet calls it. Count the tiers rather than reading the label.
Sources
ILPA Model LPA Term Sheet — Whole-of-Fund Waterfall Version (July 2020)
ILPA · T1
Used for: The catch-up tier definition and its target condition, the 80% catch-up rate in the model itself, and the tier sequence the catch-up sits inside.
ILPA Private Equity Principles 3.0 (2019)
ILPA · T1
Used for: The hard hurdle position and ILPA's recommendation of it, the finding that 16% of sampled funds carry no hurdle, and the alignment rationale.
Industry Intelligence Report — "What's Market in Fund Terms?" (2021)
ILPA · T1
Used for: The 8% preferred return at 67% of funds and the 20% carry rate at 71% of funds, which set the inputs the worked example uses.
Highlights From the Final Carried Interest Regulations
Goodwin Procter LLP · T2 · serp
Used for: The numerical catch-up case — $2,000,000 of catch-up after an 8% hurdle on $100,000,000, leaving the general partner with 20% of $10,000,000 in profit — and the tier-count constructions.
Private Equity Funds: Clawbacks and Investor Givebacks
Duane Morris LLP · T2
Used for: The 100% catch-up as United States drafting practice and the treatment of the catch-up tier alongside the clawback.
Preqin (BlackRock) · T2
Used for: The formulation of a 100% catch-up rate: once investors have received returns up to the hurdle, the general partner receives all gains until its overall share reaches the stated carry rate.
The One Big Beautiful Bill Act Expands QSBS Benefits (July 11, 2025)
Cooley LLP · T2 · serp
Used for: The practitioner treatment of the catch-up in the fund-formation literature, used to confirm the mechanic rather than to source a rate.