Pitch a Rs 1,500 crore infrastructure fund to potential LPs: 14% gross target, 6% cash yield, 1.5% fee and 15% carry over an 8% hurdle. What net return and yield should an LP expect, and which LPs should you call first?

An LP should expect roughly 11.8% net with about 4.5% a year paid in cash. The 1.5% fee takes 14% to 12.5%, and 15% carry on the 4.5 points above the 8% hurdle costs another 0.68 points. The 6% yield less the fee is 4.5% of cash on Rs 1,500 crore, Rs 68 crore a year. Pension funds and insurers with long rupee liabilities are the first calls, because they buy the yield and the stability, not the headline.

Walk from gross to net the way a tenant walks from rent to what reaches the bank: the agent's fee comes off first, and a share of any rise above the old rent goes to the agent too. The 1.5% fee comes off the top every year, taking 14% to 12.5%; the carry is 15% only of the return above the 8% hurdleThe preferred return LPs must receive before the manager takes any share of profits., so 4.5 points times 15% is 0.68 points, and the LP keeps about 11.8%. This is an approximation that treats fee and carry as yearly drags on the rate; a real waterfall runs on cash flows and dates, and the exact net depends on how fast capital is drawn and returned, which you say out loud.

Because the LPs who buy infrastructure are buying something a buyout fund cannot sell them. Six per cent of the 14% is paid as cash from tolls and tariffs every year, 43% of the gross return, so an LP's money is partly back before any asset is sold; a buyout fund returns almost nothing until exits. After the fee that is 4.5% a year, Rs 68 crore on a full Rs 1,500 crore. For an insurer paying annuities or a pension fund paying retirees, that cash matches a liability, and the 25-year contracts behind it make the cash easier to count on than a buyout's exit multiple.

Insurers and pension funds first, then sovereign and development funds with an infrastructure mandate, then family offices that want income. They will push on three things: the fee on committed rather than invested capital, which means paying 1.5% on money that is not yet working; the 12-year life against 25-year assets, which forces a sale or a continuation vehicle; and what happens to the yield if a toll road's traffic or a tariff falls short. Say what a weaker outcome looks like: at 10% gross the LP nets about 8.4%, because the carry falls away below the hurdle and only the fee bites. Infrastructure LPs would rather hear that number than a bigger headline, because they are underwriting the floor, not the ceiling.

Close with the limit. The net figures here are rate approximations; the actual net to each LP depends on the drawdown schedule, the timing of distributions, and whether the waterfall is deal by deal or whole fund. Saying that in the pitch is a strength, because the LPs' own teams will model it and will notice if you did not.