When a fund pays its manager deal by deal, early wins can pay out more carry than the whole fund earns. A clawback sends the excess back. Here the manager took $10M, earned $4M and returns $6M.
What the film says
In private equity, sometimes the manager has to give the money back. That's called a clawback. Here's how it happens. Some funds pay the manager deal by deal. Say its cut, known as carry, is twenty percent of the profit. The first deal makes fifty million. The manager takes ten. Investors get forty. Then the next deals lose thirty million. The manager still has its ten. Investors are down to ten. When the fund ends, total profit is twenty million. Twenty percent of that is four. But the manager is holding ten. Six million goes back to investors. They end with sixteen, the manager with four. So why do investors care? Without a clawback, that six million stays with the manager. The point: carry is earned on the whole fund, not the best deal. IN PRIVATE EQUITY,
In the glossary: Clawback
A simple example with round numbers, not advice. Terms vary by fund.
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