Who puts the money in.
Who gets the money out.

Money the GP invests alongside LPs. The lab returns this capital and its pro-rata proceeds separately from carry. A zero GP check makes its investment multiple and IRR undefined, even if it earns carry.

The ordered rules for dividing available cash among partners. Fill each applicable tier before moving to the next. It describes distributions; taxable income allocations can follow additional rules.

The limited partnership agreement or LLC operating agreement records the negotiated rules. Definitions, side letters, and amendments can change an apparently familiar 80/20 split or 8% hurdle.

The layers financing an investment, with different claims and risk. Here debt is paid before partner equity. A preferred-equity class is a separate security with its own terms; it is not interchangeable with the lab’s preferred-return input.

Gross portfolio returns precede the modeled fund fees and carry. Net LP returns use the LP’s own contributions and distributions after those economics. Both remain pre-tax here. Specify the layer and deductions before comparing percentages.

A commitment is the amount promised. A call requests some of it. Paid-in capital is what has actually been contributed. Uncalled commitments are not automatically treated as invested on day one.

Return of capital gives your contribution back. Return on capital is profit. Contributing $100 and receiving $130 means $100 capital returned and $30 profit, not $130 profit.

Pari passu means equal priority; pro rata means in proportion to a defined share. The lab assumes both partners’ capital participates proportionally before the promote. An LP-first agreement needs different priority rules.

An agreed payment priority before incentive profit is allocated. It may accrue simply or compound and may be cumulative or noncumulative. This lab uses cumulative preference. It is neither guaranteed cash income nor automatically an IRR hurdle.

In the no-catch-up examples, carry applies only to profit beyond the preference. Profit used to satisfy the preference is excluded from carry. Always specify the calculation basis and whether the hurdle is simple or compounded.

A soft hurdle can allow carry on profit from the first dollar once its conditions are satisfied. A completed catch-up can reach that economic target. The lab models a gradual catch-up; it does not model an immediate, retroactive cliff that reallocates previously paid preference.

100% describes the GP’s allocation of a particular catch-up tier. Completed means enough cash reached that tier to meet the carry target. An 80% or 50% allocation can also complete the catch-up if sufficient cash exists.

Residual cash is what remains after earlier priorities. A tiered promote changes the split at specified thresholds. The live model has two LP IRR hurdles; its upper rate applies only to the marginal cash above the second hurdle.

IRR is the discount rate that makes the dated cash flows’ net present value zero. This lab uses annual periods. XIRR uses actual dates. No positive cash flow means no valid IRR; a 100% capital loss should not be labeled a calculated −100% IRR.

A multiple compares value or proceeds with invested capital; specify gross versus net and realized versus unrealized. The lab’s LP multiple is realized distributions divided by all LP contributions, including the modeled fee budget. It does not annualize returns.

DPI = distributions ÷ paid-in capital. RVPI = remaining value ÷ paid-in capital. TVPI = DPI + RVPI. At the lab’s fully realized endpoint, RVPI is zero and the LP cash multiple equals DPI and TVPI on the same basis.

The “2” usually describes an annual management fee and the “20” a profit share; they have different bases. Fees are manager revenue before business expenses. The lab budgets fees on total commitments and permits a rate step-down.

Related descriptions of performance compensation. Their legal form and tax treatment need not be identical to a partnership carried interest. The lab models cash economics before tax, not the tax character of an allocation.

Carry is tested across the fund’s specified capital and results. It can still pay before final liquidation once its conditions are met. “European” describes a convention, not a geographic restriction.

Carry can be paid after individual realizations. Agreements may first net prior losses, write-downs, or expenses. “American” is not a universal formula. The whole-pool calculator does not administer deal-specific loss accounts.

A clawback can require repayment of excess carry under agreed conditions. Escrow holds some money back before release. Neither automatically guarantees full recovery; timing, tax limits, enforceability, and who owes the repayment matter.

Recycling reuses proceeds for investments. Recallable distributions may be called again under the agreement. They affect commitment limits, paid-in capital, and return calculations; the lab does not assume either.

Fund borrowing can bridge investments before investor capital is called. This changes LP cash-flow dates and adds borrowing costs. It is separate from property or portfolio-company debt and is outside the live model.