While the economics of a private equity fund structure can appear straightforward when described in brief, they can quickly become distorted beyond recognition depending on the structure and provisions of the fund’s waterfall. The countervailing interests of general partners and limited partners when it comes to cash disbursements and profit treatment can result in highly sensitive negotiations. Strafford CLE Webinars hosted a recent webinar featuring Kirkland & Ellis partners David H. Stults and Aalok Virmani that addressed these issues at length. This first article in a two-part series analyzes the different styles of waterfalls, as well as the variations and features that may be included to balance the partners’ competing interests and objectives. The second article will evaluate the role and impact that carried interest clawbacks in waterfalls can have on distributions, along with the potential tax implications of those provisions. For more on carried interest, see “A Guide to Pledge Funds: Deal Uncertainty Issues and Three Investment Vehicle Structures (Part Three of Three)” (Apr. 23, 2019); and “Panel Offers Perspectives on Internal Compensation Arrangements for Investment Professionals: Carried Interest and Deferred Compensation (Part One of Two)” (Mar. 15, 2018).