Carried Interest: A Breakdown
Carried Interest or the “carry” refers to the percentage of the profit received by fund managers. Commonly, a manager who oversees a fund on behalf of limited partners receives a share of the profit from any investment gains. By way of example, a hedge fund manager usually receives 20% of the profits. Essentially, the carry rewards managers for enhancing fund performance, and serves as a useful incentive-based income. While “profits” can be manipulated, good definitions, as well as clawbacks and collars serve to protect both managers and their funds from compensation swings.
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