The formula to calculate the private equity carry is:
\[ \text{Carry} = (\text{Profit} - \text{ReturnThresh}) \cdot \frac{\text{CarryPercent}}{100} \]
Where:
Let's say the total profit (Profit) is $1,000,000, the return threshold (ReturnThresh) is $800,000, and the carry percentage (CarryPercent) is 20%. The private equity carry would be calculated as follows:
\[ \text{Carry} = (1000000 - 800000) \cdot \frac{20}{100} = 40000 \text{ $} \]
So, the private equity carry is $40,000.
A Private Equity Carry, also known as carried interest, is a share of the profits of an investment or investment fund that is paid to the investment manager in excess of the amount that the manager contributes to the partnership. It serves as a performance fee, rewarding the manager for enhancing the fund's performance. The standard carried interest is typically around 20% of the fund's annual profit, but this can vary depending on the fund's structure and strategy. This aligns the interests of the fund managers with those of the investors, as the managers stand to gain significantly if the fund performs well.
