Investor Memo: General Partner Carried Interest

To: Limited Partners & Co-Investors From: ColdPort Investment Committee Date: May 22, 2026 Subject: Alignment of Interest: The General Partner Promote and Waterfall Architecture

Executive Summary

In institutional private equity, the alignment of financial incentives between the Limited Partners (the capital providers) and the General Partner (the operating sponsor) is the most critical component of the entity structure. A misaligned fee architecture incentivizes asset accumulation over asset performance. ColdPort engineers its partnership agreements to ensure absolute parity of interests, utilizing a European-style distribution Waterfall and a performance-based Carried Interest (the "Promote") structure. This memorandum details how ColdPort’s compensation is intrinsically linked to the generation of outsized alpha, ensuring our sole focus remains on maximizing LP wealth.

The Flaw of Asset Management Fees

In legacy real estate syndications, sponsors often enrich themselves through a litany of upfront friction costs: heavy acquisition fees (e.g., 2% of the purchase price), massive disposition fees, and high AUM-based management fees.

This structure is fundamentally flawed. If a sponsor is paid heavily to simply buy a building, they are incentivized to deploy capital as rapidly as possible, often compromising underwriting discipline. If they are paid heavily to manage the asset regardless of its profitability, they lack the intense motivation required to aggressively push NOI growth.

ColdPort rejects the fee-heavy model. We utilize minimal, "keep the lights on" operational fees to cover the overhead of our engineering, acquisitions, and asset management teams. Our true compensation is back-ended, heavily restricted, and entirely dependent on execution.

The Mechanics of the Distribution Waterfall

ColdPort utilizes a structured "Waterfall" methodology to govern how every dollar of profit is distributed. We employ a European-style waterfall (fund-level hurdle), which is vastly superior for LPs compared to an American-style (deal-by-deal) waterfall, as it requires the sponsor to make the LP whole on the entire fund's performance before taking profits.

Tier 1: Return of Capital (100% to LPs) The absolute first priority is principal preservation. 100% of all distributed cash flow (from operations, refinances, or sales) goes to the LPs until they have received their entire initial capital investment back.

Tier 2: The Preferred Return (100% to LPs) Once the initial capital is returned, 100% of the cash flow continues to go to the LPs until they achieve a pre-determined "Preferred Return" (the Hurdle Rate), typically set between 8.0% and 10.0% annualized. Up to this point, ColdPort has earned zero performance profits.

Tier 3: The First Promote (e.g., 80% LP / 20% GP) Only after the LPs have their capital returned and have achieved an 8% to 10% annualized yield does ColdPort trigger its Carried Interest. In this tier, excess profits are split, with 80% going to the LPs and 20% going to ColdPort.

Tier 4: The Second Promote (e.g., 70% LP / 30% GP) To aggressively incentivize ColdPort to drive outsized, asymmetrical returns, the waterfall often includes a second hurdle. If ColdPort drives the LP’s internal rate of return above an exceptional threshold (e.g., 18.0% Net IRR), the split on any remaining profits adjusts to 70% to the LPs and 30% to ColdPort.

The Psychology of the Promote

The Carried Interest structure completely aligns the psychology of the General Partner with the financial goals of the Limited Partner.

Because ColdPort earns nothing but baseline overhead until the LP achieves an excellent, risk-adjusted yield (the 8%-10% hurdle), we are structurally prevented from profiting on mediocre deals. We cannot make money unless the Limited Partners make significantly more money first.

This architecture drives every operational decision. It forces rigorous discipline during the acquisition phase (refusing to overpay, because overpaying crushes the IRR and eliminates the promote). It drives aggressive CapEx and leasing execution to force NOI higher. And it dictates precise disposition timing to maximize the velocity of the equity multiple.

GP Co-Investment (Skin in the Game)

To further cement this alignment, ColdPort mandates a GP Co-Investment in every fund or programmatic JV. By investing our own proprietary capital (typically 5% to 10% of the total equity) alongside our Limited Partners, we share the exact same downside risk. We are not merely operators gambling with external money; we are the largest single investor in our own thesis.

Conclusion

The European waterfall and back-ended Carried Interest structure represent the gold standard of institutional governance. By linking ColdPort’s wealth creation entirely to the outperformance of LP capital, we eliminate the agency problem. Our structural architecture guarantees that our expertise, our operational intensity, and our capital markets engineering are entirely deployed toward one singular objective: maximizing the risk-adjusted returns of our Limited Partners.

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