Home / Publications / CMS Funds Market Study 2021 / Carried interest
Table of contents
  1. Summary of study findings
  2. Sample Funds
  3. Interview with Anne Breen, Aberdeen Standard Investments
  4. Glossary of terms
  5. Interview with Edmund Craston, PATRIZIA
  6. Strategies
  7. Fund terms
  8. Interview with Eric Byrne, UBS
  9. Interview with Matthias Reicherter, Golding Capital
  10. Interview with Austin Mitchell, Nuveen
  11. Management fee step down rates
  12. Management fees
  13. GP commitment
  14. Redemptions and limits on liquidity
  15. Carried interest
  16. Governance
  17. Predicted fund trends

Carried interest

For closed-ended funds carry remains anchored around 20% of fund profits after return of principal and hurdle across the asset classes. However, we have seen some alternatives including:

  • High Carry: A new trend seems to be emerging where a small number of top managers who perform very well in the resilient sectors (such as technology and distribution) can demand higher carry.

    For technology-focused venture capital funds, there is some evidence of a developing market normal for a second tier of 25% carry above a 3x return. For some managers with a strong track record there is even higher carry for outstanding returns.
  • Ratchet-based Carry: Where the manager has a higher carry percentage as the fund achieves additional benchmarks.
  • Different combinations of Carry/fees: Where a higher fee attracts lower carry and vice versa.

Hurdle Rate

An 8% hurdle rate remains the most common across all asset classes.

Sample Funds Promote: Hurdle


Basis for distribution: Whole Fund vs Deal-by-Deal

Whole fund waterfall is the predominant model for Europe and Asia in our Sample Funds.


Catch-up Rate

Once investors have received profits equal to the hurdle, typically the carry holders are entitled to receive a percentage of the pre-hurdle profits to catch-up with the investors. Historically, carry holders received 100% of catch-up distributions to catch-up to the position of investors.

Whilst this remains common for private equity funds, a lower rate of catch-up is more common for real estate funds, typically around 50%, with no catch-up in some instances (although hurdle rates may be lower or ratcheted in these situations).


Escrow, Claw-Back and Guarantees

It is common for carry to be subject to a clawback on termination of the fund (including both Deal-by-deal and Whole fund waterfalls), with escrows continuing to be common in Deal-by-deal funds. We are also starting
to see a growing request for fund manager guarantees although these are still generally resisted.