Catch-up is the allocation phase in a fund waterfall where profits flow to the GP until the GP’s cumulative carried interest share is restored — usually 20% of total profits above the hurdle.

How it works

Standard order after returning LP capital:

1. LPs receive preferred return (hurdle) on contributed capital
2. Catch-up: GP receives distributions until GP has X% of all profits distributed above step one — often structured so GP ends at 20% of total profits
3. Remaining profits split 80/20 (or as negotiated)

Catch-up can be full (GP gets 100% of distributions until caught up) or partial (GP gets a stated percentage during catch-up). The difference materially shifts early distribution timing in successful funds.

Modeling matters for LPs comparing fund terms and for GPs forecasting partner carry receipts.

Some funds use tiered carry with different catch-up speeds by return band — reading the LPA waterfall exhibit line-by-line is essential because summary slides rarely capture ordering nuances.

Waterfall modeling spreadsheets from fund counsel are the authoritative reference — not verbal descriptions in pitch meetings or marketing decks alone.

Why it matters

• GPs: Faster catch-up accelerates carry economics after hurdle clearance — important for partner retention mid-fund life.
• LPs: Negotiating catch-up percentage and ordering is as important as headline carry rate; small wording changes shift millions on large funds.

Common mistake

Confusing catch-up with the management fee. Catch-up applies only to profits above hurdle in the waterfall — not to annual management fees charged on commitments regardless of performance.

Related ideas

See also carried interest, preferred return, waterfall, and clawback.