Leveraged Buyout · Private Equity Investing
Catch-Up Clause in Waterfalls
This question asks how a catch-up clause changes the distribution of private equity profits between limited partners and general partners.
Interview question
- Difficulty
- Medium
- Topic
- Leveraged Buyout
- Subtopic
- Private Equity Investing
What this question trains
This problem practices your understanding of private equity fund economics, especially how a distribution waterfall allocates cash between LPs and GPs. You need to understand the order of payouts, the role of a preferred return or hurdle, and why a catch-up provision exists in fund agreements. Interviewers ask this because they want to see whether you can explain incentive alignment, investor protections, and how carried interest is earned in a way that is precise and commercially grounded.