1. What is Carried Interest?

Carried interest (or "carry") is the share of profits that investment managers receive as compensation, typically calculated as 20% of fund returns above a specified hurdle rate.

2. How Does Carry Calculation Work?

The calculator uses the standard carry formula:

Where:

• Fund Return — Total return of the investment fund
• Hurdle — Minimum return threshold before carry applies
• 20% — Typical carried interest percentage

Explanation: Carry is only paid on returns that exceed the hurdle rate, aligning manager incentives with investor returns.

3. Importance of Carry Calculation

Details: Accurate carry calculation is essential for fair compensation in private equity, hedge funds, and venture capital partnerships.

4. Using the Calculator

Tips: Enter fund return and hurdle amounts in USD. Both values must be positive numbers, with fund return typically greater than hurdle.

5. Frequently Asked Questions (FAQ)

Q1: Is 20% the standard carry percentage?
A: While 20% is common, carry percentages can range from 15-30% depending on the fund structure and asset class.

Q2: What's a typical hurdle rate?
A: Hurdle rates are often 7-8% in private equity, representing a preferred return to investors before carry kicks in.

Q3: Is carry taxed differently?
A: In many jurisdictions, carried interest receives capital gains tax treatment rather than ordinary income treatment.

Q4: What's the difference between deal-by-deal and whole-fund carry?
A: Deal-by-deal carry is calculated per investment, while whole-fund carry considers aggregate performance across all investments.

Q5: Can carry be negative?
A: No, carry is always zero or positive - managers don't share in losses beyond their capital contributions.