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Carried Interest Calculator

See how management fees, a hurdle, the GP catch-up and carry split a fund’s proceeds, and how far they move LPs from gross to net returns.

Inputs

Reset

Fund and fees

Per year, on commitments

Usually the investment period

0 for no step-down

Returns

Enter returns as

On invested capital (after fees)

Compounds the hurdle and annualizes returns

Waterfall

Per year, compounded. 0 for none

GP catch-up

Results

Net MOIC to LPs

2.18x

Versus 3.00x gross on invested capital. Fees and carry cost LPs 0.82x.

LP net proceeds
$218,000,000
LP net profit
$118,000,000
GP carried interest
$29,500,000
Management fees
$17,500,000
17.5% of commitments
Gross proceeds
$247,500,000
GP share of profit
20.0%
Carry / (proceeds - commitments)
Gross MOIC
3.00x
Gross IRR
17.0%
Net IRR to LPs
11.8%

Of $247.5M in exit proceeds, LPs receive $218M and the GP earns $29.5M in carry. Fees of $17.5M plus carry turn a 3.00x gross multiple into 2.18x net for LPs.

Distribution waterfall
TierTo LPsTo GP
1. Return of capital$100,000,000$0
2. Preferred return (8%)$71,382,427$0
3. GP catch-up$0$17,845,607
4. 80/20 split$46,617,573$11,654,393
Total$218,000,000$29,500,000
Where the money goes

For education only. Not tax, legal or investment advice.

Track fees and carry in Raziel

Log capital calls, fees and distributions for every fund and SPV, and see your net returns as an LP.

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The math

How the carry waterfall works

A distribution waterfall is the order in which a fund pays out its proceeds. In a European, whole-fund waterfall, the GP earns carry only after LPs are made whole on the entire fund.

  1. Fees first. Management fees are charged on commitments each year and paid from LP capital, so they reduce what gets invested. A step-down lowers the rate after the investment period.
  2. Return of capital. All proceeds go to LPs until they have back everything they contributed, fees included.
  3. Preferred return. LPs then receive the hurdle, compounded annually, before the GP sees any carry.
  4. Catch-up and split. With a full catch-up, the GP takes 100% of the next dollars until it holds its carry share of all profit. Everything after that is split, for example 80% to LPs and 20% to the GP.

Net MOIC is what LPs get back divided by what they paid in. The gap to gross MOIC is the combined cost of fees and carry.

Fees      = fund x (fee x years + step-down x years)
Invested  = fund - fees
Proceeds  = invested x gross MOIC
1. LPs    get their capital back (the whole fund)
2. LPs    get the hurdle: fund x ((1 + h)^years - 1)
3. GP     catch-up: until GP has carry% of profit
4. Split  the rest: carry% to GP, the rest to LPs

Assumptions and simplifications

  • One-shot timing: all commitments are called on day one and all proceeds are distributed after the years you enter. Real funds call capital over several years and distribute over many more, so actual IRRs and hurdles differ.
  • Fees are charged on commitments for every fee year and are paid from the fund. No fee offsets, fund expenses, recycling or GP commitment.
  • European (whole-fund) waterfall only. No deal-by-deal carry, clawback, escrow or taxes.
  • IRRs here are MOIC ^ (1 / years) - 1, which matches a single investment and single exit.

Worked example

A $100M fund at 3.0x gross, 8% hurdle, 20% carry

Management fees
$17.5M
Invested
$82.5M
Proceeds (3.0x)
$247.5M
1. Capital back to LPs
$100M
2. 8% hurdle over 7 years
$71.4M
3. GP catch-up
$17.8M
4. 80/20 split (LP / GP)
$46.6M / $11.7M
GP carry
$29.5M (20.0% of profit)
Net MOIC to LPs2.18x

Further reading

Frequently Asked Questions

Common questions about the Carried Interest calculator and the math behind it.

What is carried interest?

Carried interest, or carry, is the GP’s share of a fund’s profits, typically 20%. It is paid only after LPs get their contributed capital back and, in most funds, a preferred return. It is the main way fund managers are rewarded for performance, separate from the management fee that pays for running the fund.

What are a hurdle and a catch-up?

The hurdle (preferred return, often 8% a year) is the return LPs must earn before the GP takes any carry. A full catch-up then sends 100% of the next distributions to the GP until it has received its full carry percentage of all profits so far. With a full catch-up and enough profit, the hurdle changes the timing of carry but not the final split. Without a catch-up, the GP only earns carry on profit above the hurdle.

What is the difference between a European and an American waterfall?

A European (whole-fund) waterfall pays carry only after LPs have their capital and preferred return back on the entire fund. An American (deal-by-deal) waterfall pays carry as each investment exits, which gets the GP paid earlier and usually comes with a clawback in case later deals lose money. This calculator models the European version.

Why is net MOIC so much lower than gross MOIC?

Two reasons. Management fees come out of commitments, so less than 100% of the fund is invested; a 2% fee for 10 years can consume close to 20% of the fund. Then carry takes a share of the profit. Together they often turn a 3x gross fund into something near 2.2x net for LPs.

Do VC funds use a hurdle?

Many venture funds have no preferred return, while private equity and real estate funds usually do. Set the hurdle to 0% to see a typical venture structure. Terms vary fund to fund, so check the limited partnership agreement for yours.

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