PEINVEST
The minimum rate of return that a PE fund must achieve before the general partner can begin receiving carried interest, typically set at 8% annually. The hurdle rate ensures that LPs receive a preferred return on their invested capital before profit sharing begins.
The share of profits that the general partner receives as compensation, typically 20% of fund profits above a specified hurdle rate. Carry aligns the GP's interests with those of the LPs and is the primary performance-based incentive for fund managers.
A provision requiring the general partner to return previously distributed carry if the fund's overall performance fails to meet the specified return threshold by the end of the fund's life. The clawback ensures that GPs earn carry only on the fund's aggregate performance, not on individual deals.
The hierarchical structure governing how fund profits are distributed between LPs and the GP. The waterfall typically includes return of contributed capital, preferred return (hurdle rate), GP catch-up, and then a carried interest split, ensuring LPs are prioritized before the GP earns carry.