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Promote Structure Calculator
Most serious JV waterfalls use a multi-tier promote — splits grow richer for the GP as profit tiers hit. This calculator models three tiers (20%, 30%, 40%) plus preferred return and shows GP and LP take-home plus the sponsor's effective blended promote rate.
Total GP promote
$320,000
LP total (pref + residual)
$2,680,000
Preferred return paid
$1,600,000
GP tier 1 (20% band)
$200,000
GP tier 2 (30% band)
$120,000
GP tier 3 (40% band)
$0
Effective promote rate
0.11%
How the math works
A multi-tier promote structure rewards the GP more heavily as returns climb. After preferred return is paid, remaining profit flows through progressively richer splits — e.g., 20/80 up to a threshold, 30/70 to the next, 40/60 beyond. This aligns GP compensation with LP performance outcomes.
The effective promote rate reveals the sponsor's blended take. A sponsor may show a 'modest' 20% headline promote but earn 32% effective when upside triggers higher tiers.
How to Use
- Enter total profit above return of capital.
- Enter LP capital and pref owed to LP.
- Enter each tier's split and tier 2 threshold.
- Read GP promote totals by tier and the effective blended rate.
Frequently Asked Questions
Why multi-tier?
Multi-tier promotes align sponsor incentives with outperformance. Sponsor gets modest promote on base-case returns, more promote on upside. LPs accept higher upside promote because they only pay it when returns exceed target.
Common structures?
Institutional JV: 8% pref → 80/20 → 12% IRR → 70/30 → 18% IRR → 60/40. Retail syndications: 8% pref → 70/30 with no multi-tier.
Does promote come out of pref?
No. Pref is paid to LP first. Only the profit above pref (and above return of capital) is subject to promote splits.
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