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Carried Interest

Definition

Carried interest (commonly "carry") is the share of a private equity fund's profits allocated to the fund's management team as performance-based compensation. Carry is typically structured as a percentage of fund profits above a minimum return threshold (the hurdle rate) and vests over the life of the fund — often the full ~10-year fund life. It is only realized when portfolio companies are exited at a gain.

Context

In Ep. 3, Dan Herr and Matt Rooney discuss carried interest as a critical but unevenly distributed component of BD compensation. Per the Coastal Partners survey, roughly 55% of BD professionals hold some allocation of carry, typically beginning at VP level — still trailing deal-team counterparts where carry at VP+ approaches 100%. Dan reports seeing carry packages for BD professionals ranging from hundreds of thousands of dollars per fund to several million in the lower middle market, depending on fund size ($250M–$2B) and seniority.

Dan emphasizes that carry vests over time and is often worthless until the fund hits its hurdle rate and begins returning capital to LPs. Some funds require staying for the full fund life (~10 years) to vest 100%, which both hosts describe as "the golden handcuffs" — a powerful retention mechanism. Matt frames carry allocation as an indicator of how much a firm values its BD function: "It's a good example of like how firms value the function."