Carried interest is the primary performance-based compensation for private equity, venture capital, and hedge fund managers. It represents a percentage — almost universally 20%, though top-quartile managers may command 25–30% — of the fund's net profits distributed to the general partner after limited partners have received back their invested capital plus a preferred return (hurdle rate).
Carry aligns the GP's incentives with LP returns. In a typical '2 and 20' structure, the GP earns a 2% annual management fee plus 20% carried interest. Carry is usually subject to a clawback provision ensuring that if early distributions prove optimistic, the GP returns excess carry payments. In Southeast Asia, carry waterfalls are increasingly structured on a European (whole-fund) basis rather than an American (deal-by-deal) basis.