How Does a European Waterfall Benefit Investors?

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Learn how a European waterfall investment structure can help minimize risk and ensure that investors are paid back in a timely manner.
The waterfall defines the way in which cash distributions will be allocated between the sponsor and the investor. In most waterfalls, a sponsor receives a disproportionate amount of the total profits relative to their co-investment. For example, a sponsor may only put in 5% of the investment capital but be entitled to 20% of the profits. The typical performance fee is between 20% and 30%, subject to a preferred return hurdle. The preferred return ranges from 7% to 10% annually and can be viewed as an interest rate on invested capital, but it is not guaranteed.
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