What is carried interest?

Carried interest is the GP's share of fund profits after the fund agreement's preferred return and waterfall rules are satisfied. It is a compensation feature, but the exact economics depend on the contract.

What is a hurdle rate?

The hurdle rate is the minimum return that investors typically receive before carry begins to accrue. The actual hurdle can be fixed, compounded, or otherwise structured depending on the fund.

What is the catch-up provision?

Catch-up provisions are the mechanism that lets the GP receive a larger share of profits after the hurdle is met until the GP reaches the agreed carry split.

What is the difference between European and American waterfalls?

European waterfalls calculate carry at the whole-fund level; American waterfalls allocate carry deal by deal. The right structure depends on the fund documents and investor preferences.

How is carried interest taxed?

Tax treatment varies by jurisdiction, fund structure, and holding period. Confirm the current rules with a tax professional before relying on any estimate.

What is a typical carry structure?

A common headline structure is 2 and 20, but the actual economics can differ materially once hurdle rates, catch-up rules, fee offsets, and deal timing are modeled.

Carried Interest Calculator

Calculate carried interest (carry) for private equity, venture capital, and hedge funds. Model GP/LP distributions with hurdle rates, catch-up, and waterfall structures.

Fund Size

Carry %

Hurdle Rate

GP Catch-up %

Management Fee

Hold Period

yrs

Exit Multiple

Waterfall

GP Carried Interest

$40,000,000.00

Performance-based compensation

GP Total Compensation

$54,000,000.00

Carry + management fees

LP Net Return

$260,000,000.00

After carry and fees

LP MOIC

2.6×

Multiple on invested capital

LP IRR (est.)

14.63%

Annualized return to LPs

Hurdle Amount

$71,382,427.00

8% preferred over 7 yrs

Profit Distribution

LP Profit

GP Carry

Sensitivity: Carry by Exit Multiple

Exit Multiple	Exit Value	GP Carry	LP Return	LP MOIC
1×	$100,000,000.00	$0.00	$100,000,000.00	1×
1.5×	$150,000,000.00	$0.00	$150,000,000.00	1.5×
2×	$200,000,000.00	$20,000,000.00	$180,000,000.00	1.8×
2.5×	$250,000,000.00	$30,000,000.00	$220,000,000.00	2.2×
3×	$300,000,000.00	$40,000,000.00	$260,000,000.00	2.6×
3.5×	$350,000,000.00	$50,000,000.00	$300,000,000.00	3×
4×	$400,000,000.00	$60,000,000.00	$340,000,000.00	3.4×
5×	$500,000,000.00	$80,000,000.00	$420,000,000.00	4.2×

Planning notes, formulas, and examples

About the Carried Interest Calculator

Carried interest (or "carry") is the share of investment profits that fund managers (General Partners) may receive after a preferred return is met. In practice, carry is shaped by the fund agreement, the hurdle rate, catch-up provisions, fee structure, and whether the waterfall is calculated fund-wide or deal-by-deal.

This calculator is a simplified illustration of that economics. It is useful for seeing how the pieces interact, but it should not be read as a complete partnership-agreement model or a tax opinion on any specific fund.

When This Page Helps

Use this page to understand the moving parts of carry and how different waterfall assumptions change the split between GP and LP. It is a planning aid for comparison, not a definitive legal or tax model.

How to Use the Inputs

Enter the total fund size (committed capital).
Set the carry percentage (typically 20%).
Input the hurdle rate (preferred return to LPs, typically 8%).
Set the GP catch-up percentage.
Add the management fee rate and hold period.
Enter the expected exit multiple.
Review GP carry, LP returns, and the sensitivity table.

Formula used

Hurdle Amount = Fund Size × [(1 + Hurdle Rate)^Years − 1]. Profits above hurdle are split: GP receives Carry% after catch-up provisions. LP Return = Exit Value − GP Carry. LP MOIC = LP Return / Fund Size. LP IRR ≈ (LP Return / Fund Size)^(1/Years) − 1.

Example Calculation

Result: GP carry: ~$28.5M — LP return: $271.5M (2.71× MOIC) — LP IRR: ~15.3%

A $100M fund returning 3× over 7 years generates $200M in profit. The 8% hurdle over 7 years is $71.4M. Remaining $128.6M is split 20/80 after catch-up, yielding approximately $28.5M in carry for the GP. LPs receive $271.5M back on their $100M investment.

Tips & Best Practices

Carry outcomes depend heavily on the partnership agreement, not just the headline carry percentage.
Catch-up provisions can materially change the GP/LP split even when the carry rate looks unchanged.
European waterfalls are usually easier to reason about because fund-level losses offset winners.
Management fees are separate from carry and should be modeled separately from performance allocation.
Carry taxation and holding-period treatment vary by jurisdiction and fund structure.
Use the result as a scenario comparison rather than a substitute for the fund documents.

Modeling Notes

This worksheet is best used for comparing waterfall assumptions side by side. The output is only as good as the fee, hurdle, catch-up, and hold-period inputs you provide.

Common Pitfalls

The biggest errors come from treating a headline carry percentage as the whole deal, or from assuming the same waterfall terms across different funds. Always recheck the fund agreement before using the result in a real negotiation.

Sources & Methodology

Last updated: March 29, 2026

Methodology

This worksheet models a simplified fund-level waterfall. It treats the entered fund size as the committed capital base, computes management fees separately, calculates a compounded preferred-return hurdle over the selected hold period, and then allocates profits above that hurdle according to the entered carry and catch-up assumptions. The sensitivity table reruns the same simplified waterfall across a fixed set of exit multiples.

It is not a legal waterfall engine. It does not read an LPA, model recycled capital, escrow clawbacks, tax distributions, deal-level timing, or every distinction between European and American waterfalls. Use it to compare broad economics, not to replace fund counsel or a binding distribution model.

Sources

ILPA Principles 3.0 (English) (Institutional Limited Partners Association) — Preferred return, whole-of-fund waterfall, and carry-calculation best-practice guidance.
Whole of Fund Model Limited Partnership Agreement Overview (Institutional Limited Partners Association)
Ares Management 2022 Annual Report - Carried Interest Discussion (U.S. Securities and Exchange Commission) — Public-filing discussion of American-style versus European-style carry waterfalls.

Frequently Asked Questions

Carried interest is the GP's share of fund profits after the fund agreement's preferred return and waterfall rules are satisfied. It is a compensation feature, but the exact economics depend on the contract.