Fund maths
Carried interest calculator
How much carry does a fund manager earn, and what is left for LPs? Enter paid-in capital, total distributions, the hurdle and the carry rate.
Simplified whole-fund (European) waterfall with full GP catch-up and a hurdle compounded over an average holding period. Management fees and recycling are not modelled.
How it works
In a whole-fund waterfall, LPs first get their paid-in capital back, then a preferred return (the hurdle). With a full catch-up, the GP then receives profits until it has its carry share of all profit.
If profits are below the hurdle, there is no carry. Between the hurdle and full catch-up, the GP gets whatever is left above the preferred return.
The formula
- ProfitDistributions - paid-in capital.
- Preferred returnPaid-in x ((1 + hurdle) ^ years - 1).
- CarryIf profit > preferred return: the lower of carry % x profit and profit - preferred return.
Worked example
A $50 million fund that returns $120 million, with an 8% hurdle over six years and 20% carry: profit is $70 million, the preferred return about $29 million, and GP carry $14 million. LPs net about 2.12x.
Put the numbers in your data room
LPs check the waterfall in the LPA against the track record. Put the LPA, the waterfall model and past distributions in the LP data room.
Carried interest calculator FAQ
What is a hurdle rate?
The minimum annual return LPs receive before the GP earns carry, commonly 8% in private equity. Many VC funds have no hurdle.
What is catch-up?
After the hurdle, the GP receives a larger share of profits until it has caught up to its full carry percentage.
European or American waterfall?
European pays carry on the whole fund; American pays deal by deal, which brings carry forward and usually needs a clawback.