Carried Interest Calculator

Carried interest represents the performance-based share of profits paid to fund managers. The calculation begins by assessing the overall fund return using initial and final valuations: Fund Return = (Final Fund Value / Initial Fund Value) - 1. Next, the tool calculates the preferred return using the hurdle rate and hold period: Pref Return = (1 + Hurdle Rate)^Hold Period. Depending on whether a GP catch-up clause is active, the model splits remaining profits using standard waterfall mechanics, applying the carried interest percentage to determine the final general partner distribution.

Imagine a private equity fund with an initial fund value of $100,000,000 that grows to a final fund value of $150,000,000 over a hold period of 5 years, with a hurdle rate of 8% and a carried interest of 20%. First, we find the preferred return factor: (1 + 0.08)^5 = 1.4693. This means limited partners must receive their capital back plus the 8% annualized preferred return before carry is unlocked. Using our waterfall equations, the model computes the GP catch-up and final distribution to show that the general partner earns a substantial performance fee once performance benchmarks are cleared.

Always verify whether your fund structure utilizes a European-style waterfall (whole-fund model) or an American-style waterfall (deal-by-deal model), as this drastically impacts timing. Pay close attention to hurdle rate compounding frequencies and whether your agreement includes a full or partial GP catch-up provision before finalizing projections.