Fund economics

Catch-up

Also called GP catch-up, catch-up tier.

Definition

Catch-up is the tier of a distribution waterfall, paid after limited partners have received their capital and preferred return, in which the general partner receives all or most of the next proceeds until it has received its agreed percentage of total profit. After that, remaining proceeds are split at the carried interest rate.

Updated October 9, 2026Checked against our editorial standards

Example

LPs contributed $50M and the fund returns $80M, a profit of $30M. The waterfall has an 8% preferred return, a 100% catch-up and 20% carry. The first $50M returns capital. The next $6M is the accrued preferred return, all to LPs. Then the catch-up: the GP takes every dollar until it holds 20% of profit distributed so far. That is $1.5M, because $1.5M is 20% of $7.5M ($6M plus $1.5M). The remaining $22.5M is split 80/20: $18M to LPs, $4.5M to the GP. The GP ends with $6M, exactly 20% of $30M.

Confused with

Hurdle rate. The hurdle is the threshold that must be cleared before the catch-up starts. The catch-up is what happens next.

Carried interest. Carry is the GP's share of profit. The catch-up is the tier that delivers it quickly once the hurdle is met, so that the hurdle ends up as a timing condition rather than a permanent discount.

In practice

Not every LPA has a full catch-up. A partial catch-up, say 80% to the GP and 20% to LPs during the tier, takes longer to reach the agreed split. No catch-up at all means the GP only ever shares in profit above the hurdle, which is a materially worse deal for the manager. The tier is where waterfall models most often go wrong, so administrators check it line by line against the LPA.

Related terms

Distribution waterfallA distribution waterfall is the sequence in which a fund's proceeds are allocated between limited partners and the general partner, typically return of contributed capital first, then a preferred return to LPs, then a catch-up to the GP, then the remaining profit split at the carried interest rate.
Hurdle rate (preferred return)The hurdle rate, also called the preferred return, is the annual return, commonly 8%, that limited partners must receive on their contributed capital before the general partner is entitled to carried interest in the distribution waterfall.
Carried interestCarried interest is the general partner's share of a fund's profits, typically 20%, paid through the distribution waterfall only after limited partners have received their contributed capital and, usually, a preferred return.
ClawbackClawback is a provision in the limited partnership agreement that obliges the general partner to return carried interest already distributed to it if, measured over the life of the fund, it has received more than its agreed share of net profit or limited partners have not received their capital and preferred return in full.