Carried interest (commonly called "carry") is the GP's share of a fund's net profits, serving as the primary performance incentive in private fund structures. The standard carried interest rate is 20% of profits above a preferred return hurdle, though this varies by fund strategy, GP track record, and LP negotiation.
How Carried Interest Is Calculated
Carry is calculated within the distribution waterfall. After LPs receive their return of capital and preferred return (typically 6-8% annually), the GP may receive a catch-up allocation (to bring the GP's total share up to the carried interest percentage), followed by an ongoing profit split (commonly 80/20 LP/GP). The exact mechanics depend on whether the fund uses an American or European waterfall structure.
Carried Interest and Fund Administration
Accurate carried interest calculation requires tracking every capital contribution, distribution, and valuation event across the life of the fund. Errors in carry calculation can lead to GP overpayment, LP disputes, and costly remediation. Automated fund administration platforms compute carried interest across complex multi-tier structures, handle investor-specific side letter terms, and maintain a complete audit trail for each calculation.