Carried Interest Calculator
Calculate GP carried interest based on hurdle rates, waterfall structures, and catch-up provisions
Waterfall Breakdown
Carried interest (carry) is the share of investment profits that private equity and hedge fund general partners receive as compensation. Typically set at 20% of profits above a hurdle rate (often 8%), carry aligns GP interests with LP returns. It's the primary way fund managers earn outsized compensation beyond their management fees.
Formula:
Carry = (Total Profits - Hurdle Return) × Carry %After LPs receive their invested capital back plus the hurdle return, remaining profits are split according to the carry percentage.
- 1
Enter the total fund size or investment amount
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Input the total profits or returns generated
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Set the hurdle rate (typically 8%)
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Choose the carried interest percentage (typically 20%)
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Specify if there's a catch-up provision
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View GP carry, LP returns, and effective splits
- Carry is the primary economic incentive for fund managers
- Understanding carry helps LPs evaluate fund economics
- The hurdle rate ensures GPs only profit when they outperform
- Catch-up provisions affect how quickly GPs earn their full carry
- Carry calculations are crucial for GP compensation and waterfall modeling
- Negotiating fund terms as an LP
- Modeling GP economics for fund formation
- Understanding waterfall distributions
- Evaluating different carry structures
- Calculating GP compensation on exits
- Comparing fund terms across managers
- •GP catch-up is typically 100%, meaning they get 100% of profits after hurdle until at their 20%
- •Some funds use tiered carry - higher percentages at higher IRR thresholds
- •Carry is taxed as capital gains (20%) rather than ordinary income (37%+)
- •Clawback provisions protect LPs if early distributions leave GPs over-carried
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Frequently Asked Questions
What is carried interest in private equity?
Carried interest (carry) is the share of profits that general partners (GPs) receive as compensation, typically 20% of profits. GPs only receive carry after returning capital to LPs and achieving the preferred return (hurdle rate). It aligns GP interests with LP returns.
What is a hurdle rate?
The hurdle rate is the minimum return that LPs must receive before GPs can earn carried interest. Common hurdle rates are 6-8% annually. A 8% hurdle means LPs must achieve an 8% IRR before the GP receives any carry on profits.
What is GP catch-up?
GP catch-up allows the GP to receive a higher share of profits after the hurdle is met, until they 'catch up' to their target carry percentage. With 100% catch-up and 20% carry, the GP gets 100% of profits after the hurdle until they've received 20% of all profits.
What is the difference between European and American waterfall?
European waterfall calculates carry on the entire fund after all investments are realized (more LP-friendly). American waterfall calculates carry deal-by-deal as each investment exits (more GP-friendly). European is now more common in PE.
What is a typical carry percentage?
Standard carry is 20% of profits (known as '2 and 20' with 2% management fees). Top-performing funds may charge 25-30% carry. Newer or smaller funds might offer 15% carry. Venture capital often uses 20-25% carry rates.