Carried Interest Calculator
Whole-fund waterfall: capital back, hurdle, catch-up, then 20% carry.
GP carried interest
Estimates for planning only, not financial advice.
Carried interest is the fund manager\'s cut of the profits: usually 20%, paid only after investors recover their capital plus an 8% annual hurdle. The cash flows through a waterfall with four tiers: return of capital, the hurdle, a catch-up that trues up the manager\'s share, then the 80/20 split of everything left. Enter invested capital and total distributions, and the calculator walks each tier and shows exactly who gets what. With the defaults, $50 million invested returning $80 million over 5 years produces about $6.0 million of carry.
How to Use This Calculator
Enter total capital the fund invested and total cash distributed back (net of fees, which you model separately). Set the hurdle rate and fund life; the hurdle compounds annually on invested capital. Choose the carry percentage and whether the agreement includes the standard catch-up tier. The results show each waterfall tier\'s allocation and the final split, plus the investors\' net multiple and IRR-style return for context.
Enter capital invested and total distributions. Use net figures after management fees and expenses.
Set hurdle, fund life, and carry percent. Eight percent hurdle with 20% carry is the industry standard.
Read the tier-by-tier waterfall. If distributions barely clear the hurdle, carry collapses fast: test a downside case 20% lower to see the manager\'s real incentive.
The Waterfall Math
The catch-up is the tier people misunderstand. Without it, the manager\'s 20% would apply only to profits above the hurdle, giving them less than 20% of total profit. The catch-up fixes that by routing 100% of post-hurdle profits to the manager until their total equals 20% of all profits distributed so far. After that, the straight 80/20 split keeps the ratio constant forever. Toggle the catch-up off in the calculator to see how much value that single clause moves.
Worked Example
A fund invests $50 million and distributes $80 million after 5 years. Tier 1 returns the $50 million of capital to investors. Tier 2 pays the 8% hurdle: $50M x (1.08^5 - 1) = $50M x 0.4693 = $23.47 million to investors. Remaining: $80M - $73.47M = $6.53 million. Tier 3 catch-up: the manager receives 100% until holding 20% of profits so far. Profits so far are $23.47M hurdle; for the GP to hold 20% of (hurdle + catch-up), catch-up = $23.47M x 0.25 = $5.87 million. Remaining after catch-up: $0.66 million, split 80/20: $0.53M to investors, $0.13M to the GP. Total GP carry: $5.87M + $0.13M = $6.0 million. Investors net $74 million on $50 million: a 1.48x multiple.
What Moves the Carry Most
| Change | Effect on carry |
|---|---|
| Distributions up 10% | Carry rises much more than 10% (with strong upside participation) |
| Hurdle 8% to 10% | Carry shrinks; hurdle consumes more profit |
| Remove the catch-up | GP loses roughly a quarter of carry in typical cases |
| Deal-by-deal instead of whole-fund | GP paid earlier, often more; investors less protected |
Carry is option-like: it pays nothing below the hurdle and 20 cents on every dollar above it, which is why managers rationally prefer volatility once the hurdle is within reach. Investors counter with whole-fund waterfalls, clawbacks, and hurdles that compound rather than simple-interest. If you are evaluating a fund as an investor, the waterfall terms matter as much as the track record. For adjacent math, our IRR calculator measures the investors\' time-weighted return, our business valuation calculator values the portfolio companies, and our capital gains yield calculator isolates price performance.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is carried interest?
Carried interest is the fund manager's share of investment profits, typically 20% of gains above a hurdle rate, paid after investors get their capital back plus the hurdle. On a fund that turns $50 million of invested capital into $80 million over 5 years with an 8% hurdle, the hurdle consumes about $23.5 million, leaving $6.5 million of profit above it, and the manager's carry comes to roughly $6.0 million after the catch-up tier. It is the performance fee that aligns managers with investors.
How does a fund waterfall work?
Cash flows down in tiers: first, return of capital to investors; second, the preferred return or hurdle, usually 8% a year on invested capital; third, a catch-up that gives the manager 100% of profits until the overall split reaches the agreed ratio (often 80/20); fourth, everything beyond splits 80% to investors and 20% to the manager as carried interest. Each tier fills completely before the next gets a dollar.
What is a hurdle rate?
The hurdle rate is the minimum annual return investors must receive before the manager earns any carried interest, most commonly 8%. It can be hard (the manager only shares profits above the hurdle) or soft (once cleared, the catch-up lets the manager share in all profits including the hurdle amount). The hurdle is the investors' first layer of protection: no profit share for the manager until limited partners have earned their minimum.
What is the catch-up provision?
After the hurdle is paid, the catch-up tier routes 100% of further profits to the manager until the manager has received 20% of all profits distributed so far. Example: $4 million of hurdle paid to investors, then $1 million of catch-up to the manager, making the split $4M/$1M = 80/20. From there, all further profits split 80/20 directly. Without the catch-up, the manager's effective share of total profit would be diluted by the hurdle amount.
What is the difference between American and European waterfalls?
A European (whole-fund) waterfall returns all capital and the hurdle across the entire fund before any carry is paid: safer for investors. An American (deal-by-deal) waterfall lets the manager take carry on winning deals early, even while other deals are underwater: better for managers. This calculator models the European whole-fund version, the more common and investor-friendly structure, with an optional toggle showing the conceptual difference.
How is carried interest taxed?
In the US, carried interest has historically been taxed as long-term capital gains (around 20% federal plus the 3.8% net investment income tax) rather than ordinary income, provided the fund holds assets over three years. It is one of the most debated provisions in the tax code, with repeated reform proposals. Note the UK changed its treatment from April 2026: carried interest is now taxed as income, not capital gains. Rules change, so verify current law before modeling.
What is a clawback provision?
A clawback forces the manager to return carried interest if early wins are later erased by losses, so the final split matches the agreed ratio. Without it, a deal-by-deal manager could keep carry from early exits while the fund overall loses money. Clawbacks usually apply at fund end, sometimes interim, and they are a key investor protection investors should never waive.
What does "2 and 20" mean?
The classic fund fee structure: a 2% annual management fee on committed or invested capital, plus 20% carried interest on profits. On a $100 million fund over 10 years, the 2% fee alone moves $20 million to the manager regardless of performance, which is why investors scrutinize fee offsets, the fee base (committed vs invested), and step-downs after the investment period. "2 and 20" has been compressing for years; many funds now charge 1.5% and 20%, or less.
How do management fees affect the waterfall?
Management fees reduce distributable cash because they are paid from the fund, effectively increasing the capital investors must recover before carry begins. Some structures charge fees on committed capital during the investment period and on invested capital after, with the step-down accelerating the path to carry. This calculator takes net distributable proceeds as its input, so model fees first and enter what is actually available to distribute.
What return does the GP need to earn carry?
More than it looks. With an 8% hurdle over 5 years, capital must grow about 47% total just to clear the hurdle before carry starts. The manager's 20% then applies only to profits above that bar. This is why mediocre funds earn no carry at all: the hurdle consumes the entire return, and the manager lives on management fees alone.