Carried interest is the share of a fund's profits, typically 20%, that the manager earns after investors get their money back and clear the preferred return. It is the manager's main reward for performance.
What the video says
In private equity, the manager's biggest payday usually isn't its fee. It's carried interest. Say investors put in five hundred million. The fund returns nine hundred million. That's four hundred million of profit. Investors get their money back first, then a preferred return. With that cleared and a full catch-up, the manager gets twenty percent of the profit. That's eighty million. Investors keep eight hundred and twenty million. Unlike the fee, it's paid only when the fund makes money. So why do investors care? It's the manager's main reward, and why terms get fought over line by line. The fee keeps the lights on. Carry is the prize.
In the glossary: Carried interest
A simple example with round numbers, not advice. Terms vary by fund.
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