1. What is Carry Interest?

Carry interest (or simply "carry") is the share of profits that investment managers receive as compensation, typically calculated as a percentage of the fund's profits. It aligns the interests of managers with investors by rewarding performance.

2. How Does the Calculator Work?

The calculator uses the carry interest formula:

Where:

• Initial Investment — The original amount invested
• Final Value — The value of the investment at exit
• Carry Percentage — The agreed percentage of profits paid to the manager (typically 20%)

Explanation: Carry is only paid on profits, not on the entire investment amount.

3. Importance of Carry Calculation

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

4. Using the Calculator

Tips: Enter the initial investment amount, final value, and carry percentage. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is 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: Is carry only paid on profits?
A: Yes, carry is a performance fee that's only paid when investments generate returns above the initial amount.

Q3: What's the difference between carry and management fees?
A: Management fees (typically 2%) cover operating costs and are paid regardless of performance, while carry is a share of profits.

Q4: Are there different types of carry structures?
A: Yes, including deal-by-deal carry (paid on each successful investment) and whole-fund carry (paid on overall fund performance).

Q5: How is carry taxed?
A: In many jurisdictions, carry is taxed as capital gains rather than ordinary income, but tax treatment varies by country.