After investors get their preferred return, a full catch-up sends the next dollars to the manager until it holds its agreed share of the profit.
What the film says
In private equity, the manager can collect every dollar, for a while. That's called the catch-up. Say a fund has made twenty million of profit. The manager's agreed share is twenty percent. Investors go first, with an eight million preferred return. So far the manager has nothing. Now the catch-up. The next two million all goes to the manager. Two out of ten is twenty percent. After that, the last ten million splits eighty, twenty. Eight million to investors. Two million to the manager. Final count: investors sixteen, manager four. Exactly twenty percent. So why do investors care? Preferred returns delay the manager's share. With a full catch-up, it doesn't shrink it.
In the glossary: GP catch-up
A simple example with round numbers, not advice. Terms vary by fund.
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