Definition
Carried Interest
The sponsor's share of an SPV's profits, paid only after LPs receive their capital back.
Carried interest (or 'carry') is the share of an SPV's investment profits paid to the sponsor or general partner as performance compensation. The most common structure is 20% carry: after the SPV returns 100% of contributed capital to LPs, the sponsor receives 20% of any additional gains. Some sponsors use a hurdle rate (e.g. 8% preferred return) before carry kicks in, or a tiered carry that increases at higher return multiples. Carry is typically taxed as long-term capital gains in the US when the underlying holding period exceeds the statutory threshold.