The $25bn clawback liability
26.09.2024 – Articles
New study reveals scale of clawback risk created by the American waterfall structure.
A recent report from Upwelling Capital highlights how the American carry distribution model, where GPs receive carried interest early in a fund’s life, can lead to clawback liabilities if the fund underperforms later.
The report outlines a hypothetical fund with an American distribution waterfall to illustrate how a clawback liability is created. The imagined fund gets off to a good start with some early exits, placing the fund above its cumulative 8% IRR threshold. This allows the GP to take carry distributions that are earned as of year three.