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Private Equity Waterfall and Carried Interest Provisions: Economic and Tax Implications for Investors and Sponsors

Distributions, Clawbacks, and Allocations; Carried Interest Sharing; Drafting to Address Tax Consequences

An encore presentation with Live Q&A.

Recording of a 90-minute premium CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
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Conducted on Tuesday, February 20, 2024

Recorded event now available

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This CLE course will analyze various alternatives to structure waterfall provisions in private equity funds, carried interest, and related clawback and allocation provisions. The program will also examine the tax implications of such provisions.

Description

Waterfall provisions governing distributions are a critical component of the relationship between a private equity fund sponsor and its investors. These provisions impact the amount and timing of the return of investor capital and the sponsor's receipt of carried interest distributions. Several variations can significantly affect the financial results of investors and the sponsor.

Other important considerations in drafting fund economic provisions include: (1) the tax implications of the distribution waterfall and income and loss allocations; (2) tax distribution provisions to address phantom income; and (3) clawbacks that allow investors to recoup carried interest distributions to the sponsor under certain circumstances.

These considerations have corresponding implications at the fund sponsor level. Sharing of carried interest among sponsor personnel is a crucial aspect of incentive compensation arrangements for fund managers. Variations in these sharing arrangements require careful drafting and planning.

Listen as our authoritative panel discusses structuring waterfall provisions, carried interest distributions, carried interest sharing options at the sponsor level, and clawbacks and allocation provisions for private equity funds and their sponsors, as well as the tax implications.

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Outline

  1. Typical waterfall variations and their economic implications for investors and the sponsor
  2. Carried interest clawbacks
  3. Carried interest sharing arrangements at the general partner level
  4. Tax ramifications, allocation provisions, and tax distributions

Benefits

The panel will review these and other key issues:

  • What are the typical approaches for structuring a private equity fund distribution waterfall?
  • How do these variations impact the timing of carried interest distributions to the sponsor?
  • What are some of the approaches to sharing carried interest at the sponsor level?

An encore presentation featuring Live Q&A.

Faculty

Marrs, Nathaniel
Nathaniel M. Marrs

Partner, Co-Head of Investment Funds Practice
DLA Piper

Mr. Marrs represents domestic and international fund sponsors and other institutional owners and operators of real...  |  Read More

Virmani, Aalok
Aalok Virmani

Partner
DLA Piper

Mr. Virmani advises investment fund sponsors on federal income tax matters. In particular, he focuses on the domestic...  |  Read More

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