Accounting

If Limited Partners get 30% of profits but have an equal share of 4.5% of those profits, how much does the fund have to profit itself for the LPs to see 18% returns? Can anyone answer?

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works at

This is confusing. I’m assuming this is a waterfall? You would need to see the IRR hurdle rates

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18%

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What EY 2 said plus if there are any carry allocations in the waterfall there may need to be large cumulative returns as well

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So let's say the fund does a deal and comes up with $100,000 profit. 30% goes to LPs.....$30,000. Each LP gets 4.5% of that $30,000 which is $1350. $1350 from a $50,000 investment is a return of 2.7%. To get to 18% return, divide 18 by 2.7 and you get 6.6. Therefore, the initial investment needs to return 6.6 times what it did to get to 18% for the LPs. 6.6 times 10% of the initial profit equals 66%. The fund needs to produce profits of 66% to earn LPs their 18% internal rate of return.

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Well this certainly would have been easier to solve if I knew I could just up an initial investment to make the math work however I wanted to.

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