Designing a Waterfall That Survives a Down Year
Structures that align sponsor and LP when returns disappoint.
Anyone can design a waterfall that feels fair when a deal triples. The test is the structure that still aligns everyone when the deal merely survives.
Clawbacks and Catch-Ups
A well-built waterfall has a clawback so early promote does not outrun final results, and a catch-up calibrated so the sponsor is motivated without being overpaid on mediocre outcomes.
The down-year stress test should be part of structuring, not an afterthought. The deals that blow up relationships are the ones whose waterfall only worked on the upside.
Principal at Foundry Workplace Advisors. Advises owners and occupiers on the future of office.
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