Carried Interest
Private Credit glossary · Fund Structures, Returns & Economics
Definition
The GP's share of fund profits — typically 15% in private credit and 20% in private equity — earned only after LPs receive their preferred return (hurdle) and the catch-up has restored the agreed split. Computed deal-by-deal (American waterfall, more GP-friendly) or whole-fund (European waterfall, more LP-friendly); subject to clawback if later losses cause aggregate splits to fall below the contract.
Carried Interest in plain English
In a private fund, there are two sides: the investors who put up the money (LPs) and the manager who runs it (GP). Carried interest is the GP's cut of the PROFITS — their reward for doing a good job — usually around 15% in private credit or 20% in private equity. The catch is the GP only earns it AFTER investors first get their money back plus a guaranteed minimum return (the "hurdle"), so the manager only wins big if the investors win first. It's like a fishing-trip guide who gets a share of the catch, but only once everyone else has filled their own baskets — and if a later disaster shrinks the total haul below what was promised, the guide has to give some back (that giveback is called a "clawback").
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