Carried interest is the share of profits due to the fund manager after the cost of investment has been returned to investors. Carried interest will usually be expressed as a percentage of the total profits of the fund. For example, a fund manager might receive 20 per cent of the funds profits and then distribute the remaining 80 per cent to investors.
Also known as "carry", it is the percentage of profits (generally 20-25%) that General Partners receive out of the profits of the investments made by a fund. For example, a $100 million fund raised from Limited Partners is invested into a portfolio of investments now worth $500 million. Assuming profits from proceeds of $50 million. Limited Partners would receive $40 million and the other $10 million would accrue to the General Partners as their carried interest. Today, General Partners typically put up about 1% of a fund's commitments and the Limited Partners put up the balance. Typically, carried interest is paid only after the original investment amounts are returned to the Limited Partners.