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Investments glossary

Distribution Waterfall

A distribution waterfall delineates the method by which capital gains are allocated between the participants in an investment. Commonly associated with private equity funds, the distribution waterfall defines the order in which distributions are allocated to limited and general partners. Usually, the general partners receive a disproportionately larger share of the total profits relative to their initial investment once the allocation process is complete. This is done to incentivize the general partner to maximize profitability.

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