Carried Interest Calculator
Calculate carry distribution and GP compensation for private equity funds
Carried Interest Calculator
Name of the private equity or investment fund
Total committed capital at fund inception
Total fund value at liquidation or exit
Fund investment period duration
Minimum annual return threshold
GP share of excess profits
Allows GP to receive higher percentage until target allocation is reached
Preset Fund Scenarios
Carried Interest Analysis
Calculation Breakdown
Carried Interest Formula (European Method)
Hurdle Amount = Initial Value × (1 + Hurdle Rate)^Hold Period
Excess Return = Final Value - Hurdle Amount
Carry Distribution = Excess Return × Carried Interest %
Result: $1,447,437 carry distribution
Performance Analysis
Fund exceeds hurdle rate significantly
• Fund Return: 100.0% total (14.9% annualized)
• Hurdle Comparison: Exceeded 5% annual hurdle
• GP Compensation: $1,447,437 (7.2% of total fund value)
Real-World Example: Fund Alpha
Given Information
Initial Fund Value: $10,000,000
Final Fund Value: $20,000,000
Hold Period: 5 years
Hurdle Rate: 5% annually
Carried Interest: 20%
Expected Carry: $1,447,437
Step-by-Step Calculation
Step 1: Calculate Hurdle Amount = $10M × (1.05)^5 = $12,762,816
Step 2: Calculate Excess Return = $20M - $12,762,816 = $7,237,184
Step 3: Calculate Carry = $7,237,184 × 20% = $1,447,437
Result: GP receives $1,447,437 in carried interest
Fund Economics
• Total Return: 100% (14.87% annualized)
• LP Return: $18,552,563 (85.5% annualized return)
• GP Carry: $1,447,437 (7.2% of total fund value)
• Return Multiple: 2.0x (doubled investment)
Carry Methods
European Method
Used in this calculator
GP gets carry after LP preferred return
American Method
Deal-by-deal basis
Carry calculated per investment
Whole Fund
Total fund basis
Carry on entire portfolio
Key Terms
Hurdle Rate
Minimum return LPs must receive before GP gets carry
Carried Interest
GP's share of profits above hurdle rate
GP Catch-up
Provision allowing GP to reach target allocation
Clawback
GP obligation to return excess carry if needed
Understanding Carried Interest
What is Carried Interest?
Carried interest is the share of investment fund profits that serves as compensation for the general partner (GP) or fund manager. It aligns the interests of fund managers with investors by linking compensation to performance.
Why is it Important?
- •Primary compensation mechanism for private equity GPs
- •Incentivizes superior investment performance
- •Aligns GP interests with limited partner returns
- •Essential for understanding fund economics
Calculation Method (European)
Carry = (Final Value - Hurdle Amount) × Carry %
Hurdle Amount = Initial × (1 + Hurdle Rate)^Years
Final Value: Fund value at exit/liquidation
Initial Value: Total committed capital
Hurdle Rate: Minimum annual return threshold
Carry %: GP's share of excess profits
Tax Considerations: Carried interest may qualify for capital gains treatment rather than ordinary income tax rates, subject to holding period requirements and other regulations.
Industry Standards
- • Typical carry: 20% (can range 15-30%)
- • Common hurdle rates: 5-8% annually
- • Management fees: 1.5-2.5% of committed capital
- • Fund life: 7-12 years including extensions
Private Equity Fund Structure
Limited Partners (LPs):
- • Pension funds
- • Endowments
- • Insurance companies
- • Family offices
- • Fund of funds
General Partner (GP):
- • Fund management company
- • Investment decisions
- • Portfolio management
- • Fundraising activities
- • Investor relations
Compensation Structure:
- • Management fees (operational)
- • Carried interest (performance)
- • Transaction fees (deal-related)
- • Monitoring fees (portfolio)