PE 🐠, ELI5: What is carried interest and how is this typically allocated amongst non-partner levels?

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An example- fund I was $100m. It returned 4x or $400m. Less initial invesment, gain is $300m. The firm earns 20%, or $60m. If your carry allocation is 1%, then you earn $o.6m.

Scenario A- let’s say you joined the firm half way into capital deployment, and your carry papers only allow you to participate in half. Your earn out would likely be $0.3m.

Scenario B- you’re subject to straight line 5-year vesting, and only been at the firm for 3 years.. your payout would be $o.36m, with $o.12m being paid to you on each anniversary

Keep in mind carry is typically paid out at each exit. So above examples are super simple.

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Depends on waterfall method too

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I think there needs to be a whole bowl dedicated to this.. search the bowl for it. But Carried Interest is what the firm earns on the investments they make from their fund. Most firms earn 20% of the gain from each investment. Of that gain 0.25% or more can be a part of comp, depending on level and deals/ops focus. This comp is typically subject to vesting schedules, timing of participation in the fund, and clawback provisions.. why carry is so valuable is due to capital gains tax treatments.

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Investors pay the PE firm a portion of profits from each deal (typically 20%), this cut is known as carried interest (carry).

If I give the PE firm $10 and they turn it into $20, the firm keeps $2 as a fee

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