What is carry crystallization?

In a continuation fund deal the old fund sells assets to the new vehicle, and that sale can trigger carry on the gain to date. ILPA’s 2023 continuation fund guidance lists crystallisation of carried interest among the conflicts the LPAC should review, and its October 2026 update says there should be no crystallisation for rolling LPs unless fully explained, and that a significant and meaningful portion of crystallised carry, net of tax, should be rolled into the new vehicle, with any shortfall explained.

Say a fund bought a company for $100 million and sells it to a continuation vehicle at $300 million. With 20% carry and nothing else in the way, $40 million of carry on the $200 million gain would crystallise; rolled in full, it stays invested in the new vehicle. Simple example. Terms vary by fund.

It lets a manager take carry before the asset leaves its control, at a price it helped set, so LPs look at whether the carry is rolled and at the price behind it.