Cumulative vs. Compounding Preferred Returns
from Syndication Attorney Field Notes with Tilden Moschetti Hosted by Tilden Moschetti
Sponsors often use the terms 'cumulative' and 'compounding' interchangeably when discussing missed distributions with investors. But in a syndication Operating Agreement, mixing up these words has real economic consequences. In this episode, syndication attorney Tilden Moschetti explains how unpaid preferred returns carry forward. We use a whiteboard hypothetical to contrast cumulative addition with compounding growth, illustrating how compounding can quietly eat a sponsor's upside after a few cash-lean years. You'll also hear why preferred returns dictate the waterfall priority of payment, rather than acting as a debt obligation. Check your pitch deck and LPA to ensure you are only promising what you intend to deliver. Also see: Cumulative Preferred Return vs. Compounding Preferred Return — https://www.moschettilaw.com/cumulative-preferred-return-vs-compounding-preferred-return/ Note: This episode's audio is generated using AI voice cloning technology based on Tilden Moschetti's written work. Watch the video on YouTube: https://youtu.be/oBeFeXomRpo
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What this episode covers
A field note on the crucial difference between cumulative and compounding preferred returns, and why confusing the two can quietly erode a sponsor's promote during cash-lean years.
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