Splits with Hurdles Template
The Splits with Hurdles Template allows users to split the distributable cash flow similar to the Split Template, but now adding in a condition (hurdle) to be able to end and move to the next rule. The IMS system currently supports hurdles based on IRR, Equity Multiple, Return of Capital, and Preferred Return. The system will support multiple hurdles such as an IRR of 15% and an Equity Multiple of 1.80x.
Pre-Conditions For Use:
The Entity must have at least two Classes to split the distribuable cash flow.
Percentage: Input the split percentage of the available cash that will be directed to each class that makes up the split
Class: Select the classes that the percentage input will correspond to.
Distribution Allocation Method: Choose how the system should allocate the distributions between the investors within the selected class.
- Pro-rata by Ownership: Most common choice. The amount distributed will be allocated according to each investor’s class ownership percentage. If more than one class is being allocated to it will look to entity ownership.
- Pro-rata by Unpaid Preferred Return: Typically, only appropriate for use with the preferred return template. The amount distributed will be allocated according to each investor’s percentage of the total amount of unpaid preferred return. For example, if you are distributing $50,000 but $100,000 of preferred return is accrued total to all investors and John Smith has accrued $1000 (1%), he will be paid 1% of the total distribution amount, or $500.
- Equal Distributions: If everyone receives the exact same amount (one-off)
Distribution Sub-Type: Select the bucket that best represents the cash flow (typically Excess Cash or Promote)
Assign Hurdle to Class: Select the Class(es) that will need to hit the hurdle before ending and moving on to the next waterfall rule
Hurdle: Select the appropriate Hurdle: IRR, Equity Multiple, Preferred Return (“its preferred return” will use the pre-set rate specified in class preferences “A preferred return” will allow you to specify a different rate), Return of Capital, or a specific percentage as applicable
Hurdle Rate: Input the applicable hurdle expressed as a percentage.
Similar to the Splits Template without hurdles, you can add additional classes to the template by selecting the + button to the right of the splits. You can also have multiple hurdles if you select the plus button. Typical combinations include an IRR Hurdle and Equity Multiple. Once the Class that the Hurdle is tied to has met the required threshold, the system will move to the next rule.