# GP Catch-Up

The **GP catch-up** is the third tier of a standard four-tier [waterfall](/waterfall-and-distributions/waterfall.md). Once LPs have received return of capital (Tier 1) and the full [preferred return](/waterfall-and-distributions/preferred-return.md) (Tier 2), the GP catch-up tier channels 100% (or a negotiated ratio) of further distributions to the GP until they hold their agreed share of total profits distributed to date.

## Why It Exists

In a two-tier structure (return of capital → 80/20 split), the preferred return would cause the GP to permanently underreceive relative to their carry percentage — because the LP receives 100% during the preferred-return tier, the LP's cumulative receipts get ahead of the split. The catch-up tier corrects this imbalance.

## Full vs Partial Catch-Up

| Structure                    | Tier 3 split    | Result                                                         |
| ---------------------------- | --------------- | -------------------------------------------------------------- |
| **Full catch-up**            | 100% GP / 0% LP | GP reaches 20% of total profits before moving to Tier 4        |
| **Partial catch-up (50/50)** | 50% GP / 50% LP | LP still receives during catch-up; GP takes longer to catch up |
| **No catch-up**              | —               | Rare; GP permanently underreceives relative to carry %         |

The full catch-up is the most common structure for buyout funds. Partial catch-up is more common in funds with a high preferred return or a GP that negotiated less favorable carry terms.

## Worked Example (Full Catch-Up)

Fund profits: €50M. Preferred return already paid: €10M (Tier 2 exhausted). Carry: 20%.

After the preferred return, total LP receipts = paid-in capital + €10M preferred return.

Tier 3 goal: GP must receive enough so that their cumulative take = 20% of total profits.

```
Total profits = all distributions above return of capital
Target GP share = 20% of total profits
Catch-up amount = Target GP share − GP receipts so far (= 0 in Tier 3 start)
```

Once the GP has caught up (holds 20% of profits), Tier 4 begins: 80/20 on all further distributions.

## From an LP Perspective

During the catch-up tier, LPs receive nothing (in a full catch-up). This can create a temporarily lumpy distribution schedule — LPs see distributions stop, then resume at 80% once the GP is caught up. GPs should communicate this clearly in distribution notices to avoid confusion.

## How Gildi Computes the Catch-Up

Gildi tracks total profits distributed and the GP's cumulative receipts. When a distribution is processed, if Tier 1 and Tier 2 are exhausted, Gildi routes funds to Tier 3 — sending 100% (or the LPA-specified ratio) to the GP until the GP's cumulative share equals the carry percentage of total profits. Remaining proceeds flow to Tier 4.


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