Clawback Provision
A contractual mechanism in a PE fund LPA (limited partnership agreement) that requires the GP to return previously-distributed carried interest if the FINAL fund-level MOIC at liquidation falls below the carry threshold. The clawback exists because American-waterfall structures let GPs collect carry on early winners that may be later offset by losers -- without a clawback, the GP could keep carry on outperformers while LPs absorb fund-level losses. Clawback effectiveness depends on GP solvency at liquidation; LP-friendly funds reinforce clawbacks with escrow accounts holding back a percentage of distributed carry.
Lessons that use this term
Related terms
Absorption Rate · AFFO per Share · Allowed Return on Equity · Alternative Investments · Anchor Tenant · Assets Under Management
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