Great article in Global Custodian on the opacity & inherent flaws within waterfall calculations for limited partners in private equity funds. Says one industry expert: “This is an area where LPs don’t feel comfortable, mainly because the calculations can be very complex & the data they’ve got in the past from the GPs has been very inconsistent. This hasn’t helped them when formulating how the waterfall works so it becomes way out of their comfort zone. It’s important for them to understand it though because it determines how the revenue of fund is going to be divided out over the span of the fund’s life. For that to be ignored is very surprising. There have been several high-profile cases where LPs have been overcharged by the GPs, resulting in a barrage of press around the process of the waterfalls & carry distributions.”
LPs have historically had almost no idea how distributions were calculated. The old spreadsheet models of the past are dying as LPs are pushing back & demanding far greater transparency. This is why fund administrators need Inveniam software to fully demonstrate how LP payouts are being treated. Better data, provable data is at the heart of waterfall calculations for private equity funds & Inveniam’s IO platform is built explicitly for this purpose.