Report examines the key elements LPs need to understand to confidently review waterfall calculations

WEST ORANGE, NJ (March 17, 2020)—PEF Services, a leading fund administrator for Alternative Investment Managers, today announced the release of a new white paper entitled “Distribution Waterfalls: The Definitive Guide for Limited Partners.” Investing is about returns, and, in private equity, how those returns are distributed to investors is dictated by the waterfall provisions of the Limited Partnership Agreement. Until recently, many investors paid less attention to this important calculation than they should, mainly because of the complexity of the calculation and the difficulty in getting enough detailed information to review it for reasonableness.

Drawing on PEF’s extensive fund administration expertise, and knowledge on the subject of distribution waterfalls, this white paper examines the importance of distribution waterfalls, the difference between the European and American models, and the key elements that Limited Partners (LPs) need to understand in order to confidently review waterfall calculations. It covers:

  • Why LPs are diving into waterfalls
  • Waterfalls 101 and the key components of the waterfall
  • European vs. American waterfalls methods
  • Waterfall trends and variations along with reasonableness checks
  • A detailed, downloadable Sample American and European Waterfall Calculations spreadsheet

“The work of industry bodies such as the Institutional Limited Partners Association and the CFA Institute, through Global Investment Performance Standards, is supporting this shift towards more active oversight,” said Anne Anquillare, CFA, CEO and President, PEF Services LLC. “By encouraging greater transparency around investment data, these organizations are helping to give LPs the information they need to understand and monitor the waterfall.”

Despite the challenges, many LPs are taking the plunge and wading deeper into waterfalls in order to understand and project their impact on investment returns. The sense of urgency has been spurred on by recent cases in which high-profile institutional investors failed to recognize and understand performance fees charged by the GP. Across the board, LPs are becoming more rigorous about monitoring their investments and more proactive about raising potential issues with their GPs.

“While the waterfall has often been seen as an impenetrable “black box,” understanding its impact doesn’t have to involve complicated analysis or a complete recalculation,” commented Beth Manzi, CPA, Chief Operating Officer, PEF Services LLC. “LPs should be able to understand the two main waterfall methods, recognize the key elements, and conduct reasonableness checks to help ensure that they protect investment returns and identify potential issues.”

This paper provides Limited Partners and General Partners with the knowledge and tools needed to confidently assess the impact of waterfalls on their investment returns.

This white paper is the latest in a series in support of PEF’s commitment to deliver valuable thought leadership content.

About PEF Services LLC

PEF Services is the new standard in providing high-value, high-touch Fund Administration services and technology solutions that elevate operational performance to drive and support sustainable growth.  Supported by senior professionals with extensive experience in alternative investments, PEF has a track record of nearly 20 years in delivering cost-effective, best-in-class solutions to Funds and General Partnerships, including Buyout, Venture, Emerging Managers, Real Estate, Debt, Fund of Funds, Co-investment, SPVs and SBICs. Additionally, the firm’s LP Administration Solutions Group focuses solely on meeting the unique administration and data needs of limited partners investing in illiquid alternative assets. PEF’s ViewPoint™ provides clients with a purpose-built portal that delivers greater visibility and real-time access to underlying investment performance data sourced directly from the official books and records of the fund. In partnering with PEF, firms increase operational efficiency, control operating costs, improve focus on core capabilities, and gain access to experts in private capital back office operations. For more information please visit

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Laura Hills
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PEF Services
212.203.4685 x180