Fund Structure
DPI Catch-Up
The stage in fund distributions where GPs begin receiving carried interest after LPs have received back their full invested capital plus preferred return.
In the standard waterfall structure: LPs first receive return of all invested capital, then LPs receive their preferred return (hurdle rate, typically 8%). Then comes the 'catch-up' — the GP receives 100% of distributions (or a high percentage) until they have received their full carry (typically 20%) on all profits earned so far. After catch-up, distributions split at the carry rate going forward.
The catch-up provision ensures GPs are fully compensated for their carry entitlement before profit-sharing reverts to the standard split.
In Practice
If a fund has $100M in profits above the hurdle, the GP's catch-up is $25M (getting them to 20% carry on $125M total above-hurdle distributions). Until that $25M catch-up is paid, LPs receive nothing further — all distributions go to the GP to catch them up.
Why It Matters
Understanding catch-up provisions matters when evaluating fund economics as an LP. In a fund with significant catch-up provisions, LPs receive no distributions for an extended period after the hurdle is cleared — the GP catches up first. This affects LP cash flow planning significantly.