Carry
Factual definition
Carried interest is the general partner (GP)’s contractual share of eligible investment profits. Its percentage, hurdle, catch-up, whole-fund or deal-by-deal waterfall, and clawback depend on the limited partnership agreement (LPA).
Also called Carried interest
Whole-fund and deal-by-deal carry can pay at different times
Under a whole-of-fund profit waterfall, returning only contributed capital leaves no profit for carry. A deal-by-deal waterfall may distribute carry on earlier gains before the overall fund outcome is known, subject to the agreed clawback.
Shayne Fitz-Coy on manager pay and investor results
It is very possible to make a lot of money and have a wildly unsuccessful fund. It is one of the main critiques from LPs about private equity (PE).
Apply the profit-sharing sequence, not just the percentage
Hypothetical whole-fund liquidation. LPs contributed US$100m.
Exactly one year later, US$130m is available after all fund costs and liabilities, with no other flows. Assume the agreement first returns capital, then pays an 8% one-year preferred return, then splits only the remaining profit 80% to LPs and 20% as GP carry.
There is no catch-up in this example; ignore any GP capital contribution.
LPs first receive US$100m plus US$8m. The remaining US$22m produces US$4.4m of carry and US$17.6m more for LPs.
Total LP cash is US$125.6m and GP carry is US$4.4m, together US$130m. Applying 20% directly to the US$30m total profit would give US$6m, which is wrong under these assumed no-catch-up terms.
The ILPA whole-fund model includes a different sequence with a catch-up stage. That difference is why the actual LPA matters.
Separate carry from management fees and the return on the GP’s own invested capital, and check any later clawback before treating an interim carry distribution as final compensation.
In course notes
Where Carry fits
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