What is Carry or Carried Interest?

Carry or Carried Interest is a performance-based share of profits paid to investment fund managers (especially in private equity or venture capital) as a reward for generating profitable returns for investors.

How It Works:

• Fund managers typically receive a management fee (e.g., 2% of assets under management).

• If returns exceed a specific hurdle rate (e.g., 8%), managers earn a percentage (often 20%) of the fund’s profits as carried interest.

Importance:

• Incentivizes fund managers to maximize returns

• Aligns fund manager interests with investors

• Often subject to favorable tax treatment in some countries