Carried Interest Calculator
Calculate carried interest (carry) for private equity funds, hedge funds, and investment partnerships. This calculator determines the performance-based compensation for fund managers.
Fund Parameters
Performance Data
Carried Interest Results
Total Fund Value:
$0.00
Carried Interest Amount:
$0.00
LP Share:
Fee Analysis
Management Fees:
$0.00
Total GP Compensation:
$0.00
GP Profit Share:
Business Insights
Fund Performance:
N/A
Carry Achievement:
N/A
Incentive Alignment:
N/A
Understanding Carried Interest
Carried interest (often called "carry") is a share of the profits earned by investment fund managers, typically in private equity, venture capital, and hedge funds. It aligns the interests of fund managers (general partners) with those of investors (limited partners).
How Carried Interest Works
Basic Structure
- GP invests 1-5% of fund capital
- LP invests 95-99% of fund capital
- GP earns 2% management fee annually
- GP earns 15-25% of profits as carry
Profit Sharing
- Profits distributed after preferred return
- GP share calculated on total profits
- LP gets 75-85% of profits
- GP gets 15-25% of profits
Carried Interest Calculation
Step-by-Step Process
How carried interest is calculated
Step 1: Calculate Total Return
- Fund Value = Initial Investment × (1 + Total Return)
- Total Profits = Fund Value - Initial Investment
- Management Fees = Annual 2% of committed capital
- Net Profits = Total Profits - Management Fees
Step 2: Apply Hurdle Rate
- Preferred Return = Initial Investment × Hurdle Rate × Time
- Distributable Profits = Net Profits - Preferred Return
- GP Carry = Distributable Profits × Carry Rate
- LP Share = Distributable Profits × (1 - Carry Rate)
Types of Carried Interest
| Type | Description | Typical Rate | Common In |
|---|---|---|---|
| Deal-by-Deal | Carry calculated per investment | 15-25% | Private equity, venture capital |
| Whole Fund | Carry on entire fund performance | 15-25% | Hedge funds, real estate |
| European | Carry on profits above hurdle | 15-25% | European private equity |
| American | Carry on all profits | 15-25% | US private equity |
Hurdle Rates and Waterfall Structures
Hurdle Rate Purpose
- Minimum return required before carry
- Protects LP interests
- Typically 6-10% annually
- Can be hard or soft hurdle
Waterfall Structure
- Distribution priority order
- Return of capital first
- Preferred return next
- Then profit split
Tax Treatment of Carried Interest
US Tax Treatment
- Taxed as capital gains (20% rate)
- Not as ordinary income (37% rate)
- Subject to 3.8% Net Investment Income Tax
- Deferred taxation until carried interest vests
International Variations
- UK: Taxed as income or capital gains
- EU: Generally taxed as income
- Some jurisdictions offer special treatment
- Tax treaties may apply
Industry Standards and Trends
Private Equity
- 20% carry on profits above 8% hurdle
- 2% management fee
- Deal-by-deal or whole fund structures
- 8-12 year fund life
Venture Capital
- 20% carry on realized gains
- 2-3% management fee
- Usually deal-by-deal
- 10-13 year fund life
Performance Measurement
Key Metrics
- Internal Rate of Return (IRR)
- Multiple of Invested Capital (MOIC)
- Distributed to Paid-in (DPI)
- Total Value to Paid-in (TVPI)
Carry Triggers
- Return of capital
- Preferred return payment
- Catch-up provisions
- Clawback provisions
Key Takeaways for Carried Interest
- Carried interest is a share of profits earned by fund managers, typically 15-25%
- It aligns GP interests with LPs by making managers' compensation performance-based
- Hurdle rates ensure LPs receive a minimum return before GPs earn carry
- Management fees (typically 2%) provide steady income while carry provides upside
- Different structures exist: deal-by-deal, whole fund, European vs American waterfall
- Tax treatment varies by jurisdiction, often favorable as capital gains
- Carry is calculated after preferred returns and management fees are paid
- Clawback provisions protect LPs if early profits reverse