Waterfall

Tiered structure for distributing cash flow between LPs and GPs.

Standard tiers: (1) return of capital to both, (2) preferred return to LP, (3) catch-up to GP (sometimes), (4) promote split above the pref (often 70/30 or 80/20). Some deals add IRR hurdles (e.g., 70/30 to 12% IRR, then 60/40 above). Custom tiers compound complexity — many syndication tools botch the catch-up.