Most investors stop reading after the "8% Pref," assuming their incentives are aligned. But the Preferred Return is just one piece of a larger system. In this episode of Mechanics of Money, Sam Silverman breaks down the single most important component of any private deal: The Distribution Waterfall.
We move beyond the headline numbers to the "plumbing" of the deal, explaining how the Catch-Up Provision can funnel 100% of cash flow to the sponsor during critical periods. Sam runs a side-by-side math comparison showing how two deals with identical returns can result in a $48,000 difference in your pocket based solely on structure.
We also explore the reality of Clawbacks, explaining why these protective provisions are often impossible to enforce and what you should ask for instead.
In this episode, we cover:
The Skeleton: Understanding the standard flow:
Pref → Capital Back → Catch-Up → Split.
Asset Nuance: How waterfalls differ between Real Estate (current pay) and Private Equity (exit heavy).
The Catch-Up Trap: The math behind Full Catch-Ups vs. 50% Catch-Ups and why it matters.
Clawback Reality: Why "Net of Taxes" clauses can render your protection useless.
The Checklist: 5 questions to determine if a sponsor is truly aligned with your capital.
Links & Resources:
Newsletter: Join the Mechanics of Money weekly deep dive: https://www.mechanicsofmoney.co
Invest: Invest with Silverman Capital: https://silvermancapital.co
About the Host: Sam Silverman is the Founder of Silverman Capital, a private equity and real estate investment firm. Mechanics of Money is the audio playbook for high-net-worth individuals moving from "High Earner" to "Sophisticated Allocator."
