Waterfall 202 - Splits with Hurdles Template

The Splits with Hurdles Template allows users to split distribution cash flow similar to the Split Template, but now adding in a hurdle rate to end the 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 distribution cash flow.

Input Fields:

Percentage: Input the % of the available cash that will be directed to the first class

Class: Select the class that the % just 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.
  • Prorata 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)
  • Total Amount: Generally, not recommended. Only to be used if there is only one investor, as it will allocate the total amount of the distribution to each investor.

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 the 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 go on to the next rule.


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