Carried Interest Calculator

What Is Carried Interest?

Carried interest, often called “carry,” is the share of profits that a fund’s general partner earns after investors receive their initial capital and a preferred return.

In simple terms:

• LPs provide most of the capital
• GPs manage the investments
• GPs earn carried interest only after performance targets are met

The most common structure is 20% carry with an 8% preferred return, but these terms vary by fund.

Why a Carried Interest Calculator Matters

Carried interest calculations can get complicated fast. Small changes in exit value, holding period, or hurdle rate can significantly affect payouts.

A calculator helps by:

• Removing manual math errors
• Showing LP and GP outcomes instantly
• Making fund economics transparent
• Supporting scenario analysis and planning

This is especially useful when reviewing term sheets, modeling exits, or explaining outcomes to stakeholders.

Overview of This Carried Interest Calculator

This calculator is built on a European waterfall (whole-of-fund) structure with 100% GP catch-up and an annual compounded preferred return.

That means:

• LPs get all capital back first
• LPs receive their preferred return next
• GPs then catch up until the agreed carry split is reached
• Remaining profits are split based on carry percentage

This is one of the most widely used models in private equity and venture capital.

Explanation of Calculator Inputs

Each input reflects a core part of fund economics. Here is what they mean and how to use them.

Capital Contributed

This is the total amount invested by LPs.

Example:
If LPs invest $10,000,000, that is your capital contributed.

Exit Value / Total Proceeds

This is the total amount returned when the investment is sold or liquidated.

Example:
If the fund exits at $25,000,000, enter that number here.

Preferred Return Hurdle

This is the minimum annual return LPs must earn before the GP receives carry.

• Common standard: 8%
• Compounded annually in this calculator

The longer the holding period, the larger the preferred return becomes.

Investment Duration (Years)

This is how long the capital was invested.

Example:
A five-year hold means the preferred return compounds for five years.

Carry Percentage

This is the GP’s share of profits after the hurdle is cleared.

• Typical value: 20%
• Higher carry means higher GP upside, but only after LP targets are met

How the Calculator Works Behind the Scenes

The calculator follows a clear step-by-step process.

1. Calculate total profit
   Exit value minus capital invested
2. Apply preferred return
   LPs receive compounded preferred return first
3. GP catch-up phase
   GPs receive profits until their share equals the carry percentage
4. Residual split
   Remaining profits are split between LPs and GPs based on carry

If total profit does not exceed the preferred return, the GP earns no carried interest.

Understanding the Results

Once you click Calculate Distribution, the calculator shows four key outputs.

GP Carried Interest (Profit)

This is the total dollar amount earned by the GP as performance compensation.

If this value is zero, the fund did not exceed the preferred return.

LP Total Distribution

This includes:

• Returned capital
• Preferred return
• LP share of remaining profits

This number represents the total cash LPs receive.

Net Multiple (MOIC)

MOIC stands for Multiple on Invested Capital.

Formula:
LP distribution ÷ LP capital

Example:
A 2.0x MOIC means investors doubled their money.

Distribution Split Bar

The visual bar shows how total proceeds are split between LPs and GPs as percentages.

This makes it easy to understand alignment at a glance, especially for presentations or discussions.

Practical Example

Let’s use realistic numbers:

• Capital invested: $10,000,000
• Exit value: $25,000,000
• Preferred return: 8%
• Duration: 5 years
• Carry: 20%

In this scenario:

• LPs recover capital and preferred return first
• GP earns carry only after those thresholds
• The final split clearly shows how performance translated into compensation

This helps both sides see whether the fund structure feels fair and aligned.

Who Should Use This Calculator?

This tool is useful for:

• General partners modeling fund economics
• Limited partners reviewing deal terms
• Analysts building investment cases
• Founders evaluating fund incentives
• Students learning private equity basics

If you work with alternative investments, this calculator saves time and reduces confusion.

Key Assumptions to Keep in Mind

This calculator assumes:

• European waterfall (whole-of-fund)
• 100% GP catch-up
• Annual compounding
• No management fees or clawbacks

Real funds may include additional complexity, but this model covers the most common structure.