One Excel workbook with no added inputs at all — every number in it is a figure
chapter 11 states. The chapter works a clawback through to 24 million dollars, then makes
three recommendations and treats them as three separate levers. Two of them are the same number
written twice. It is free. Nothing is gated behind a sign-up, and no email address is asked for.
The two negotiations the chapter recommends pull against each other. Lowering
the assumed tax rate from 45 to 37 per cent raises the obligation from 13.20 to 15.12
million — the point of doing it. The escrow does not move. So the uncollateralised balance
rises from 6.00 to 7.92 million, an increase of 1.92 — which is
precisely the 1.92 million the chapter says the tax argument is worth.
Every dollar won on the assumed rate lands, in full, in the uncollateralised
column. The investor holds a larger claim and is no better secured. Not an argument
against winning the tax point; an argument for never winning it alone.
The rule, in one line. Uncollateralised = C × max(0, (1 − t)
− e), which is zero whenever e ≥ 1 − t. It does not depend on
the size of the fund or how badly it performed. A gross clawback needs a 100 per cent
escrow; a 45 per cent clause needs 55; a 37 per cent clause
needs 63 — which inverts the intuition, because the more generous net-of-tax assumption is
the one that needs the smaller escrow.
“Fifty per cent rather than thirty roughly doubles the protected amount”
— it multiplies it by five thirds. 7.20 to 12.00 is 1.67 times,
not two, and the chapter overstates the gain by a third in the sentence recommending the
negotiation. It matters because the protected amount is capped by the obligation, and the
chapter discusses thirty and fifty without ever naming fifty-five, past which
every further point is dead money held against nothing.
The four backstops are one mechanism and three beliefs. The chapter ranks
escrow, personal guarantees, a management company guarantee and a bare obligation, and says the
guarantees depend on solvency “nobody can assess in advance”. So they are the escrow
plus three beliefs about one number. At a 30 per cent escrow the honest answer to what
will be recovered is anywhere between 7.20 and 13.20 million —
forty-five per cent of the obligation riding on the unknowable. At 55 it is 13.20 either way.
And that prices the third recommendation. An interim clawback test changes the
probability of collection, never the obligation, and probability only operates on the residual.
On a 55 per cent escrow an interim test is housekeeping. On a 30 per cent
escrow it is worth up to 6.00 million — the figure to put in front
of a manager who calls it an administrative burden. Twenty-nine checks.
The_Clawback_Collateralised.xlsx · XLSX · 14 KB
What to try first
Change the assumed tax rate on sheet 1 and watch sheet 5. Then change the escrow. Those
two cells are the entire negotiation, and the rule connecting them is one line long. Then put your
own carry figure in and everything rescales, because the whole result is proportional to it.
What the arithmetic does not settle
It cannot tell you the probability that an uncollateralised balance is collected eight years after
the carry was paid, and that is the point rather than a limitation: the chapter is right that nobody
can assess it in advance, and the workbook’s answer is to bound the recovery between the
escrow and the obligation and show how much of the range that unknowable actually governs. Nor can
it read your escrow release language — an escrow released on a schedule rather than on the
clawback position is not the instrument modelled here.
Conventions used throughout
Amber fill
an input — you may edit these
Grey fill
a formula — do not overtype these
ADDED
nothing. Every input in this workbook is a figure the chapter states
Checks sheet
twenty-nine controls — eight reproduce the chapter before anything is questioned
The fund and its five investments are the book’s own and fictional, as they are in the book.
This is not legal advice, and no workbook substitutes for reading the agreement.
Opening the file
The workbook opens in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. It uses no
macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to
update links on opening, decline — there are none.
Also by Julian R. Sterling
The other books with companion files. The full list of titles is on the
author page.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
These files accompany How to Read a Limited Partnership Agreement. The book is on Amazon.
If this book helped — or didn’t — a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.