What is Carried Interest (or Carry)?

Carry (or deferred carried interest) is an element of compensation that the managers of a private equity fund may receive as a percentage of their realized capital gains. This Carry is generally calculated on the basis of the fund's relative profitability compared with a benchmark index.

Although Carry is essentially based on capital gains, fund managers are generally required to make a capital contribution in order to receive Carry. Compensation in the form of Carry can therefore be seen as a kind of bonus for fund managers.

Carry is commonly described as a form of performance compensation, as managers are only entitled to Carry for profits and gains generated by the fund.Carry is often supplemented by fixed compensation, such as salaries and bonuses, and can last up to 10 years for most funds.

Carry is known to be a particularly sought-after element for investment managers. It is generally more important than the total return on capital for fund managers, and can amount to 20%, 30% or even 40% of the fund's total return.

Carry is known to be highly profitable, and is considered a must in the private equity sector. Fund managers can earn excellent returns on their Carry investments, which can result in considerable returns for themselves and their partners.