Carried interest is generally the largest share of the general partner’s profits from a private equity fund or a hedge fund. The general partner usually receives an annual management fee, often around 2% of assets. Carried interest is often referred to as the “carry.”
The carried interest piece is generally a percentage of the profits generated by the fund. Carried interest is the portion of the fund’s profits that the general partner receives as the major part of their compensation.
The general partner is usually a partnership of investment managers who contribute anywhere from 1% to 5% of the fund’s initial capital. They receive their share of the ongoing management fee and certainly have a vested interest in the fund doing well from that standpoint alone. However, the “real money” stands to be made from the carried interest component of their compensation.