- Management Fee
- GP Commitment
- Carried Interest Overview
- Carried Interest – Preferred Return and GP Catchup
In this post, we will explore what happens if the GP is paid too much carry. Generally speaking, the GP must return the overpayment, and this is called the GP clawback. But it’s not that simple, so read on!
How a GP Can be Paid Too Much Carry
In the prior post “LP Corner: Fund Terms – Carried Interest Overview” we discussed that there are two main types of carried interest – whole fund carry (also known as “European carry”) and deal-by-deal carry (also known as “American carry”).
In whole fund carry, the GP is paid carry only after the fund has returned to the LPs all of their contributed capital. This has the effect that the GP is paid carry later in the fund’s life (compared to deal-by-deal carry), and because the LPs are repaid all of their contributed capital before the GP takes its carry, it is pretty unlikely that the GP will receive too much carry.
Conversely, in deal-by-deal carry, the GP can collect carry much earlier than under whole fund carry, and in some cases, the GP can be paid too much carry over the life of the fund. Please review the example in the prior post for more detail on this and to see how too much carry can be paid.
To read more, please click on the "Read More" link below and to the right.