Glossary - Carried Interest
Carried interest, often referred to as 'carry,' is a share of the profits generated by a hedge fund or private equity fund that is paid to the fund managers as part of their compensation. This is in addition to any fees that might be charged. The carry is meant to incentivize the manager to maximize performance of the fund.
Also known as
- Carry
- Profit Interest
- Performance Fee
Use cases examples
- Limited Partnership Agreement: The General Partner shall be entitled to a carried interest, equivalent to 20% of the fund's profits, after returning the Limited Partners' initial capital contributions plus an agreed-upon hurdle rate.
- Venture Capital Fund Terms Sheet: Carried interest will be allocated 80% to the Limited Partners and 20% to the General Partners, following a preferred return of 8% to the Limited Partners.
Considerations for investors
- Evaluating the alignment of carried interest structure with investment goals and expected fund performance.
- Assessing the fund manager's track record to ensure their interests are aligned with generating substantial returns.
Considerations for founders
- Understanding the implications of carried interest on the long-term financial relationship with investors.
- Negotiating fund terms to potentially include caps or staged increases in carried interest rates based on performance benchmarks.
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