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The waterfall method is used in the Funds module to generate distribution notices for all participants in a fund.

 

This method can be pictured as a set of buckets, each bucket contains its own calculation method. When the first bucket is full, the remaining capital flows into the next bucket etc.

With each step, the participant's share of the distributed amount is calculated based on the percentage of the participant's investment amount in relation to the total invested amount of all participants.

 

1.Return of Capital

The first step of the waterfall is to return the total amount that was invested by the participants.

 

-The amount available for this step is the current distribution amount.

-The invested amount is the total requested amount at the date of the last previous call.

-The invested return amount is the invested amount minus previous invested return amounts but never more than the available amount.

 

2.Hurdle (Preferred Return)

The second step is to distribute a minimum expected result.

The hurdle is a percentage of the invested amount and is calculated separately for every period that the invested amount has changed by a capitall call or distribution notice.

The hurdle percentage is set at the fund settings.

 

-The amount available for this step is the remaining distribution amount after step 1.

-The total period the calculation is about goes from date first call to the current notice date.

-Sub periods (see column History in the example below) are defined by the dates of previous capital calls and previous distribution notices.

-For each sub period the 'Calculation over amount' at the start date of the period is calculated as the total invested amount of the last previous call decreased by the total distribution amount of the last previous notice.

-The 'Total calculated hurdle amount' is distributed as far as the available amount.

 

Per sub period the hurdle amount is calculated with the formula:

'Calculation over amount' * (Hurdle rate / 100 ) / 'days in a year' *  'number of days in sub period'.

 

To calculate the number of days in a period and the number of days per year, the calculation method in the Fund settings is used.

When a sub period spans several years, the calculation will be performed annually.

 

Example

 

 

01-01-2018        The 'calculation over amount' = zero because there were no previous calls.

 

3.Catch-up

The third step of the waterfall is the catch-up fee for the fund's manager.

The fee percentage is set at the fund settings.

 

-The amount available for this step is the remaining distribution amount after step 2.

-This fee is calculated over the total invested amount of the last previous call plus the total hurdle distribution minus the total catch up of the last previous notice.

-The catch up fee is distributed as far as the available amount.
 

4.Surplus management fee

In the last step of the waterfall the remaining distribution amount is divided between the fund's manager and the participants.

The fund manager's share is a percentage set at the fund settings.

 

-The amount available for this step is the remaining distribution amount after step 3.        

-The management share is calculated as a percentage of the amount available.

 

The remaining amount available will be divided over the participants.