Carried Interest Calculator
Calculate the carry distribution and carried interest of an investment fund.
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The fund return is:
Total GP carry distribution is:
What is carried interest?
Carried interest is a crucial component of the compensation structure within the private
equity and hedge fund industries. It represents a share of the profits earned by investment
managers on successful investment ventures. Typically, this interest is calculated as a
percentage of the profits generated above a specified hurdle rate, ensuring that managers
are incentivized to pursue high-performing investments that yield returns exceeding the
expectations of their investors. This performance-based compensation aligns the interests of
investment managers with those of their clients, as it encourages managers to make prudent
investment decisions that prioritize long-term growth and profitability.
Carried interest plays a pivotal role in attracting top talent to the investment management
industry. The prospect of earning significant rewards from successful investment strategies
motivates skilled professionals to join private equity firms and hedge funds, fostering an
environment of innovation and expertise. Moreover, carried interest serves as a retention
tool, incentivizing managers to remain committed to their investment portfolios over the
long term, thereby promoting stability and continuity within firms. Ultimately, carried
interest enhances the efficiency and effectiveness of investment management practices,
driving value creation for investors and contributing to the overall growth and prosperity
of the financial markets.
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