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.
If you have any questions about your carry, tax or any other executive compensation questions, contact us today.