1. What is Carried Interest?

Carried interest is the share of profits that investment managers receive as compensation, typically calculated as a percentage of the fund's profits after returning initial capital to investors and meeting any hurdle rate.

2. How Does the Calculator Work?

The calculator uses the carried interest formula:

Where:

• \( \text{Profits} \) — Total investment profits (USD)
• \( \text{Carry %} \) — Percentage of profits going to manager (decimal)
• \( \text{Hurdle} \) — Minimum return before carry applies (USD)

Explanation: The calculation first deducts any hurdle amount from profits, then applies the carry percentage to the remaining profits.

3. Importance of Carried Interest Calculation

Details: Accurate carried interest calculation is crucial for fair compensation in private equity, venture capital, and hedge funds, ensuring proper alignment between managers and investors.

4. Using the Calculator

Tips: Enter total profits in USD, carry percentage (typically 20%), and optional hurdle rate. All values must be valid (profits > 0, carry % between 0-100).

5. Frequently Asked Questions (FAQ)

Q1: What's a typical carry percentage?
A: In private equity and venture capital, 20% is standard, though it can range from 10-30% depending on the fund.

Q2: What is a hurdle rate?
A: A minimum return that must be achieved before carried interest is paid, often 7-8% in private equity.

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

Q4: When is carried interest typically paid?
A: Usually after returning all contributed capital to investors, though some funds have interim distributions.

Q5: What's the difference between catch-up and carry?
A: Some funds have a catch-up provision where the manager receives a higher percentage of profits until they "catch up" to their full carry percentage.