Carry / carried interest
Carry is shorthand for carried interest: the manager’s incentive share of investment profit under the agreement. It is separate from management fees and the return on the GP’s own capital.
Whole-fund illustration · Hurdle & catch-up
Private equity fund carry calculator
Model PE fund commitments, capital calls, fee budgets, preferred returns, and GP catch-ups. Separate co-investment proceeds from carried interest.
What does a GP catch-up do in private equity?
After capital and the preferred return are paid, a catch-up directs a larger share of the next dollars to the GP. Once the catch-up is complete, the GP has its target share of the LP-attributable profit, including the preferred-return tier. Removing the catch-up leaves carry only on profit above the hurdle in this model.
Your investment lab
Make the deal. Follow every dollar.
Start with a preset, then change any input. Your numbers stay in this browser unless you share them.
01 / Sources & uses
Build the fund budget
$
$
Separate from management fees. Included in capital returned before carry.$
Fully invested. Gross portfolio multiple applies to both investment budgets.%
Percentage of total partner capital.LPs
Used only to show an illustrative check size.Fee budget & capital calls
%
On total commitments, including GP.years
%
Still on original commitments here; actual fee bases may change.%
years
Equal calls at each year-end, before exit.Total commitments required
$100.00M
The entire budget is ultimately called. The first call is only the starting check.
- LP capital$98,000,000
- GP capital$2,000,000
Total per LP commitment$4.90M20 equal LPs
First check per LP$1.23M25% called at year zero
| Initial investment | $75,000,000 |
|---|---|
| Follow-on investments | $10,000,000 |
| Other costs | $2,000,000 |
| Lifetime management fees | $13,000,000 |
| Total uses | $100,000,000 |
When capital is called
$25.00MYear 0
$18.75MYear 1
$18.75MYear 2
$18.75MYear 3
$18.75MYear 4
$75,000,000 remains uncalled immediately after year zero. All calls precede the year-7 distribution.
02 / Economics
Define the agreement
years
Baseline: all payments at this year-end. Step 5 can move a portion earlier.% per year
%
%
Share of LP-attributable cash in this tier, not a share of all lifetime profit.Exit assumptions
x
Realized proceeds / invested dollars, before fund fees and carry. Company debt effects already included.Before the partners split anything
$170.00M available to distribute
Realized portfolio proceeds$170,000,000
Available to equity$170,000,000
Read a residual dollar correctly
Before any higher tier, the GP receives 21.6% in total of a residual dollar: 2% as a co-investor plus 19.6% as the incentive allocation. LPs receive the balance.
The catch-up is an earlier tier with a different split. Once complete, it restores the target carry share of LP-attributable profit including the preferred return.
- LP share of $100$78
- GP co-investment share$2
- GP incentive share$20
Gross return ≠ net investor return
Fees are already funded inside the $100,000,000 commitment budget. They are not deducted from exit proceeds a second time. The portfolio multiple applies to $85,000,000 actually invested.
03 / Distribution waterfall
Who gets what?
Total distributed$170.00Mat year 7
- LP proceeds$152.88M
- GP co-investment$3.40M
- GP carry / promote$13.72M
Manager fee revenue: $13.00M
Already funded in the budget. Separate from exit distributions and from carry. Business expenses and taxes are not deducted, so this is not manager profit.
Class challenge: predict before you look
Under these inputs, does the GP receive any carry?
Distribute cash in this order
Each bar is a payment tier. Teal goes to LPs, gold to the GP’s invested capital, and purple to the performance allocation.
- 1. Return invested capital$100,000,000
Capital comes back in proportion to contributions, up to available cash.
- 2. Pay the preferred return$49,278,170
8% compounded annually on each funded contribution; not a guaranteed payment.
- 3. GP catch-up$12,319,542
100% of this tier’s LP-attributable pool goes to carry until the target profit share is reached. GP co-investment still participates separately.
- 4. Split the remaining profit$8,402,288
LPs keep the balance after the incentive allocation; GP co-investment remains separate.
| Tier | LPs | GP co-investment | Carry / promote |
|---|---|---|---|
| 1. Return invested capital | $98,000,000 | $2,000,000 | $0 |
| 2. Pay the preferred return | $48,292,606 | $985,563 | $0 |
| 3. GP catch-up | $0 | $246,391 | $12,073,152 |
| 4. Split the remaining profit | $6,587,394 | $168,046 | $1,646,848 |
| Total | $152,880,000 | $3,400,000 | $13,720,000 |
LPs + GP co-investment + carry = $170,000,000. Every dollar accounted for.
04 / Risk & reward
Change the outcome
Move the exit value and see who absorbs the downside and earns the upside.
x
Before fund fees and carry.Why clawbacks exist
Two $10M investments return $20M and $0. Before fees and with no hurdle, the combined $20M fund has no profit. Paying 20% carry on the first deal’s $10M gain would pay $2M early; whole-fund economics would allow $0. A contract’s clawback can address the difference.
This illustration excludes co-investment, taxes, and contractual clawback limits. The live calculator uses whole-pool economics, with an optional early payment after all calls; it does not calculate contractual clawbacks.
The same investment, different agreements
Keep capital, fees, timing, and proceeds fixed. Change only the incentive structure. Catch-up uses a 100% allocation for this comparison.
| Structure | LP proceeds | GP carry | LP multiple |
|---|---|---|---|
| No carry | $166,600,000 | $0 | 1.70x |
| Hurdle; no catch-up | $162,538,521 | $4,061,479 | 1.66x |
| Hurdle + full catch-up | $152,880,000 | $13,720,000 | 1.56x |
What if the equity pool returns less—or more?
Illustrative available cash before carry as a multiple of all partner contributions. These are scenarios, not probabilities. Fees and capital stay fixed; sale proceeds and, when necessary, retained cash are adjusted to reach each target.
| Equity cash / capital | LP profit / loss | GP investment profit / loss | GP carry |
|---|---|---|---|
| 0.50x | -$49,000,000 | -$1,000,000 | $0 |
| 1.00x | $0 | $0 | $0 |
| 2.00x | $78,400,000 | $2,000,000 | $19,600,000 |
| 3.00x | $156,800,000 | $4,000,000 | $39,200,000 |
Upside compensation changes the GP’s return
The GP contributes $2,000,000 and receives $3,400,000 on that investment, plus $13,720,000 of carry. Fee revenue of $13,000,000 is separate and can exist even when investors lose money.
05 / Timing experiment
When does the money move?
Move part of the same total cash earlier. Recalculate each payment through the waterfall and compare it with receiving everything at exit.
Year-end payment, after the final capital call and before final exit. A call in the same year occurs immediately before the payment.
Simple preference accrues on unreturned capital. Compound preference also accrues on unpaid preference. Neither is a guaranteed cash yield.
One pool of cash, counted once
Move $42,500,000 earlier; leave $127,500,000 for year 7. Contributions, fees, and total available cash stay fixed. The investor split can change.
Cash is already net of operating costs, debt payments, and modeled fees. This experiment does not create cash or forecast a refinance. A real refinance also changes the loan and future payments.
Before revealing the result: who benefits?
Will earlier cash raise LP IRR? Will fewer dollars accrue to the preferred return? Does a full catch-up change the answer?
Use the ledger to separate timing gains from changes in who receives the profit.
Calls below. Payments above.
Grey bars are partner contributions. Payment bars separate LP proceeds (teal), GP co-investment (gold), and carry (purple). Year 0 is closing; later dates are year-end.
| Measure | Everything at exit | Your timing case |
|---|---|---|
| LP proceeds | $152,880,000 | $152,880,000 |
| LP profit / loss | $54,880,000 | $54,880,000 |
| LP IRR | 8.90% | 10.84% |
| LP multiple | 1.560x | 1.560x |
| GP carry | $13,720,000 | $13,720,000 |
| First carry payment | Year 7 | Year 7 |
Read the dollars and the clock together
With simple preference, returning capital sooner shrinks the balance earning future preference; a preference payment alone does not return principal. With annual compounding, interest also accrues on unpaid preference. For the same dated cash flows and hurdle, relabeling capital versus interest does not change IRR.
A completed catch-up can restore the GP’s target share of total LP-attributable profit even when the preference amount changes. An incomplete catch-up can produce a different split.
Annual payment ledger · scroll for all columns
| Year | Total called | LP capital back | LP preference | LP other profit | GP co-investment | GP carry | LP capital left | Unpaid LP preference |
|---|---|---|---|---|---|---|---|---|
| 0 | $25,000,000 | $0 | $0 | $0 | $0 | $0 | $24,500,000 | $0 |
| 1 | $18,750,000 | $0 | $0 | $0 | $0 | $0 | $42,875,000 | $1,960,000 |
| 2 | $18,750,000 | $0 | $0 | $0 | $0 | $0 | $61,250,000 | $5,546,800 |
| 3 | $18,750,000 | $0 | $0 | $0 | $0 | $0 | $79,625,000 | $10,890,544 |
| 4 | $18,750,000 | $41,650,000 | $0 | $0 | $850,000 | $0 | $56,350,000 | $18,131,788 |
| 5 | $0 | $0 | $0 | $0 | $0 | $0 | $56,350,000 | $24,090,331 |
| 6 | $0 | $0 | $0 | $0 | $0 | $0 | $56,350,000 | $30,525,557 |
| 7 | $0 | $56,350,000 | $37,475,602 | $17,404,398 | $2,550,000 | $13,720,000 | $0 | $0 |
Total payments: $170,000,000. Matches the original $170,000,000 cash pool.
This is a two-distribution, annual-date experiment. It does not model cash paid before later capital calls, multiple operating distributions, refinancing mechanics, daily XIRR, escrow, or clawbacks. Fees are excluded from GP investment return metrics.
Baseline · all payments at final exit
LP total proceeds$152.88M1.56x · 8.9% IRR
LP profit / loss$54.88MAfter modeled fees and carry
GP carry / promote$13.72MExcludes co-investment proceeds
GP total distributions$17.12M8.56x · 47.6% IRR · excludes fees
Timing: steps 1–4 use annual capital calls and one final distribution. Step 5 compares an earlier payment plus the reduced final payment. IRRs use annual dates, not daily XIRR. Equity multiple = total distributions ÷ total contributions. GP return metrics include carry, exclude fees, and are N/A if the GP invests no capital. With no positive distributions, IRR is N/A even though the capital loss is 100%. Displayed dollars are rounded; calculations are not.
Know what the words mean
Promote, carry, and carried interest
Carry is short for carried interest. Promote is the common real estate term for the same broad performance-incentive concept. A percentage alone is incomplete: identify the profit pool, payment priority, hurdle, catch-up, and treatment of GP co-investment.
Promote / promoted interest
The term commonly used in real estate for the sponsor’s performance allocation. It often describes the same economic idea as carry. The words alone do not specify the hurdle, catch-up, or whether the quoted GP split includes co-investment.
GP, LP, and sponsor
GP means general partner; LP means limited partner. The sponsor organizes and manages the investment. These labels describe roles; an LLC may use manager and member terminology. The legal documents determine rights and liabilities.
Open the full waterfall glossary · Find a scenario or check model coverage
Understand what you calculated
The decisions behind the numbers
Fund commitments must cover fees too
If a fund needs $87M for investments, follow-ons, and expenses, and fees use 13% of total commitments, it must raise $87M ÷ 87% = $100M. This lab budgets fees on total GP and LP commitments and lets the annual rate step down.
Calls change the clock
The initial call occurs at year zero. Remaining commitments are called equally at the end of each selected call year. The preferred return accrues only from each contribution’s date; every investment realizes at the end of the hold in this simplified model.
100% catch-up does not mean 100% of profit
For a 20% carry with a 100% catch-up, $4M of LP preferred profit requires a $1M catch-up: $1M ÷ ($4M + $1M) = 20%. If only $0.5M is available, the catch-up remains incomplete.
Whole-fund versus deal-by-deal
A whole-fund waterfall looks across fund contributions and results. A deal-by-deal arrangement can distribute carry earlier; later losses may require a clawback under the agreement. Steps 1–4 pay carry at final realization; step 5 can pay it earlier after all calls. Neither simulates a deal-by-deal clawback.
Risk, reward, and what the model leaves out
Portfolio leverage is a separate layer
The gross portfolio multiple here is on equity invested by the fund, after portfolio-company debt effects. It is not an enterprise-value multiple. Fund-level borrowing is excluded.
Timing can flatter IRR
Later calls can raise IRR without changing total dollars returned. Compare the equity multiple, capital-call timing, and fees alongside IRR. Subscription credit lines are not modeled.
Fee and clawback terms matter
Fee offsets, GP fee waivers, invested-capital fee bases, recycling, escrow, taxes, and clawback limits vary by agreement. The displayed manager fees are gross revenue before the management business’s expenses.
Steps 1–4 use one final distribution. Step 5 adds one early payment after all capital calls, then a reduced final payment. Both use annual dates and fixed partner ownership. Taxes, recycling, subscription lines, fee waivers and offsets, later calls after payouts, daily XIRR, and contractual clawbacks require a separate model. These examples are tested educational calculations, not a reconstruction of a named fund’s performance or an audit of an actual partnership agreement.
Waterfall questions students ask
Are promote, carry, and carried interest the same thing?
Carry abbreviates carried interest. Promote is commonly used in real estate for the same broad incentive-profit concept. The agreement still determines when it is earned, which profit pool is used, and whether the quoted GP percentage includes co-investment. Management fees and returns on GP capital are separate.
Why does a complete loss show N/A IRR?
IRR solves for a discount rate that makes cash-flow net present value zero. With contributions and no positive distributions, there is no valid solution. Losing the entire contribution is a 100% capital loss and a 0.00x multiple, but not a calculated −100% IRR. With no GP investment, GP IRR is also undefined.
Are all common waterfall provisions calculated here?
The lab calculates core whole-pool structures: pro rata, no hurdle, preference without catch-up, partial or full catch-up allocations, and two IRR tiers. It also compares two payment dates. The overview maps additional common terms to explanations, including deal-by-deal carry and clawbacks, and identifies provisions that need a separate model. It is not a universal LPA engine.
Does an 8% preferred return guarantee an 8% IRR?
No. It is a payment priority, and the cash may be insufficient. With one initial contribution, an 8% simple preference over five years adds 40% to capital; receiving 1.40x at year 5 is about a 6.96% annual IRR. An 8% compounded hurdle requires about 1.4693x over those same five years. Interim cash flows change the calculation.
When does the GP actually receive carried interest?
Only when a distribution reaches an incentive tier in the modeled agreement. Fees can be received earlier and are separate. In the timing step, the chart and annual ledger show the first year carry is paid. Real agreements may also defer cash in escrow or impose clawbacks and other conditions.
Does returning capital early always help the LP?
Earlier cash generally improves time value, but it can also reduce later preference accrual on unreturned capital and increase carry. Compare net LP dollars, IRR, and the payment priority together. Relabeling the same dated cash flows alone does not change IRR; changing the economic accrual rules can.
What is the difference between European and American waterfalls?
These labels commonly mean whole-fund and deal-by-deal carry, respectively; they are not geographic guarantees. Whole-fund terms look across fund contributions and results. Deal-by-deal terms can pay carry sooner, subject to the actual agreement’s loss, reserve, escrow, and clawback provisions. The live lab uses whole-pool economics, not deal-by-deal administration.
Is this an audited fund-administration or legal calculation?
No. The published examples are tested teaching models. They assume fixed GP ownership, pro-rata co-investment, the specified fee base, and annual dates. The timing comparison adds one early payment after all calls and one final payment. It does not handle later capital calls after payouts, taxes, recycling, investor-specific side letters, GP fee waivers, daily XIRR, subscription lines, or a contractual clawback. The signed agreement and actual dated cash flows control real distributions.
Bring these questions to class
- Why does the LP net multiple differ from the gross portfolio multiple?
- How does turning off the catch-up move dollars between LPs and the GP?
- What if a winning deal exits before a losing deal?
References & further reading
ILPA workshop · worked whole-fund waterfall, slide 12
Independent arithmetic benchmark: $100M capital, $4M accrued preference, $112M to LPs, and $3M carry. The general-page adaptation simplifies the dates.
A.CRE · payment timing, preferred return, and capital
Distinguishes a cash yield from an IRR hurdle and explains why the agreement’s distribution provisions matter.
ILPA model LPA · whole-fund distributions and clawback
An example agreement, not a universal set of terms. See §§14.3 and 14.7; its bracketed catch-up allocation is 80%.
A.CRE · real estate catch-up and promote mechanics
Shows how sponsor fees, hurdles, catch-ups, and promote conventions can differ.
Carta · 2025 Fund Economics Report
Context for fee and carry terms observed on Carta’s platform; the presets here are illustrative, not a market quote.
Compare all four learning pages · Explore more finance calculators