Carried Interest (Carry)

Carried interest is the performance-related remuneration of the fund managers (the GP / general partner) of a private equity or venture capital fund. The market-standard arrangement is a waterfall structure: first, the limited partners (LPs) receive back their invested capital plus a preferred return (the hurdle rate). This is often followed by a preferential distribution to the GP — the so-called ‘catch-up’ — until the overall split matches the agreed ratio (regularly 80/20). Only above that threshold are proceeds distributed according to that ratio.

The carry creates a strong financial incentive to maximise the value development of the portfolio companies and is a core element of the GP–LP incentive system.