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Carried interest, also known as “incentive allocation” or simply “carry,” is the percentage of fund profits charged to the investors as an incentive fee (on top of management fees). It represents the portion of fund profits that are allocated to the fund management team. It is the carrot that keeps the fund’s general partner searching for above average investment opportunities.
The carried interest allocation is typically around 20 percent of the fund’s profit but can be much higher. Recent events have put downward pressure on this percentage. The fee is then distributed to fund team members based on their share of carried interest.
Given that profits are required in order to realize upside, levels of carry payout have not kept up with years past.
Unlike the hedge fund industry, where 70 percent say they receive no upside, 52 percent of private equity professionals reported receiving some level of carry.
For those with carry, they report having an average vesting period of just shy of 4 years to be fully vested in their carried interest.
Perhaps the greatest indicator of whether one receives carry is their length of work experience, as work experience usually translates into higher level positions as well.
The full report shares the details of carry by title and by number of years of experience. The report is included in a Premium membership or can be purchased separately at PrivateEquityCompensation.com
Back to the 2010 Private Equity Compensation Report
