medium · Private Equity

If the GP takes $4M carry from Deal A, and the LPA requires losses to be recovered before carry on subsequent deals, what happens when Deal C exits for a $15M gain?

1. The $10M loss from Deal B must be 'recovered' from the Deal C gain before the GP calculates carry on the remaining $5M
2. The GP receives $3M in carried interest on Deal C right away, calculated simply as a flat 20% times the $15M total gain
3. The GP must fully return the entire $4M carry it previously took from Deal A in order to cover the Deal B loss
4. The limited partners are contractually required to pay the GP an extra $2M out of pocket to cover the shortfall from the Deal B loss

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