Carried Interest Calculator
The formula
What the carried interest tells you
The GP's share of profits: 20% of gains above an 8% preferred return — whether the hurdle compounds and how the waterfall tests it decide how much carry truly arrives.
Calculation: Hurdle = commit × (1+r)^t − commit; carry = % × profit above the hurdle. Enter your inputs and every substitution is shown below the result.
Reading the result
The effective rate is the honest one: with hurdles and catch-ups, realized carry commonly lands at 12–16% of total profit.
Rules of thumb: 8% compounded hurdle, 20% carry, 100% catch-up is the US standard
Limitations and best practice
Deal-by-deal (American) waterfalls pay carry while losers stay open; whole-fund (European) is the LP-favorable default in this math.
This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Frequently asked questions
What does the catch-up do here?
Is carry capital gains?
Source & methodology
ILPA terms standards; IRS §1061.
Carried Interest explained: formula, worked example and honest limits
You are here because you need a specific number, and you want to see how it was produced before you rely on it. There are plenty of pages about Carried Interest; almost none of them show the working. This one does: the formula, every input, a fully computed example, and a sensitivity analysis calculated live from this engine’s own defaults.
The discipline Carried Interest enforces is naming your assumptions. Fund profit realized ($) and Fund size ($) are guesses dressed as inputs; once they are on paper, the argument stops being about vibes and starts being about whether the guesses are defensible — which is how good decisions get made.
Like most useful measures, Carried Interest is a summary, and summaries hide as much as they reveal. The companion outputs and the input table are here to reopen what the headline compressed.
Nothing below is stock text pasted around a number: the worked example computes GP carried interest = $0 from this tool’s own defaults — which is the thread the rest of this guide pulls on.
The Carried Interest formula, explained
Here is the complete model this tool runs — Hurdle = commit × (1+r)^t − commit; carry = % × profit above the hurdle — with each input explained below. If a competitor’s page gives you a different answer from the same inputs, this is the text that settles which of you is right.
Fund profit realized ($) (example value 171,000,000) is a measured number in the unit named by the label; the formula does not convert for you. If you are unsure what belongs in this field, look at the printed steps: the substitution shows exactly how the engine uses it.
Fund size ($) (example value 725,000,000) is a quantity rather than a category — precision here is cheap and worth having. Measure twice and use the unit the label asks for — length terms often scale the result geometrically.
Preferred return hurdle (%) (example value 5) is a measured number in the unit named by the label; the formula does not convert for you. Check the convention first: if the source says “6.5 % per year”, type 6.5 and let the formula do the rest.
Avg years capital outstanding (example value 6) is a quantity rather than a category — precision here is cheap and worth having. Use the value as of today, not as of the last time you looked — time fields drift silently.
Carried interest (%) (example value 20) is a measured number in the unit named by the label; the formula does not convert for you. Check the convention first: if the source says “6.5 % per year”, type 6.5 and let the formula do the rest.
Carried Interest with real numbers, step by step
The tool prints its own working; this is the same arithmetic on the example values, reproduced so you can follow it by hand. Starting figures: Fund profit realized ($), Fund size ($), Preferred return hurdle (%), Avg years capital outstanding. The computed GP carried interest comes out at $0, which the interpretation band labels “Profit sits inside the hurdle — no carry until the preferred is paid”.
- Hurdle = $725,000,000 × (1 + 5%)^6 − capital = $246,569,339
- Carry = 20% × ($171,000,000 − $246,569,339) = $0.00
Hurdle accrued over 6 years — $246,569,339. Read next to the headline, this is the figure that shows the shape of the trade-off.
Profit above hurdle — $0. This is the number experienced users quote when the headline alone would mislead.
Effective carry on total profit — 0.0 %. This is the number experienced users quote when the headline alone would mislead.
Overwrite any input above and every line of this example updates with it — the substitution is live, not a screenshot of somebody else’s numbers.
Reading the result: bands, zones and thresholds
The value above only becomes useful the moment you know what it is being measured against. The default case lands in the “Profit sits inside the hurdle — no carry until the preferred is paid” band, and bands are deliberately wide because real situations overlap. The practical reading rules: ask what would have to change to move you one band. If the answer is “a small, plausible input difference”, the band itself is not the finding — the uncertainty is.
Where Carried Interest sits next to similar measures: this tool answers “how much is the Carried Interest”, while the related calculators answer “what do I do about it”. Reading the result alone tends to over-weight a single snapshot; pairing it with the companion tools above turns the number into a decision.
The errors that quietly break a Carried Interest figure
Deal-by-deal (American) waterfalls pay carry while losers stay open; whole-fund (European) is the LP-favorable default in this math. This calculator gives an estimate based on standard formulas; it is not professional financial, medical, legal or engineering advice. Verify anything you plan to act on with a qualified professional and your own records.
Reporting the headline and quietly discarding Hurdle accrued over 6 years. The companions are where the shape of the trade-off survives the rounding.
A final trap is presentation: reporting Carried Interest to more decimal places than the inputs support. The tool prints what the arithmetic gives; you should quote only what your least precise field justifies.
Before you trust your Carried Interest: a short checklist
- Re-run the calculation with a ±10 % stress on the two most sensitive inputs.
- Check that every field the formula needs actually arrived from a document, not from recollection.
- Confirm the inputs are dated — a Carried Interest figure should carry the date it was computed.
- Note the date and the inputs beside the number so the figure can be audited later.
- Recompute once with the dominant input deliberately set low, and see whether the decision changes.
- Confirm the answer against one independent method or published benchmark for Carried Interest.
Five steps from raw inputs to a figure you can defend
The tool does the arithmetic; the routine below is what makes the arithmetic trustworthy. Five steps, a minute total — and afterwards you will know not just what the number is, but which assumption produced it.
Step 1 — one document, one pass. Open the statement, label or record that holds fund profit realized ($), fund size ($), preferred return hurdle (%), avg years capital outstanding, carried interest (%) and transcribe straight into the form. Transcription from a single source removes the mismatch errors that appear when figures are assembled from three different places. When in doubt, prefer the boring input: the interesting one is usually the one you misread.
Step 2 — compute the version you would not be embarrassed by. If a stranger audited your inputs, which set would you hand over? Enter that set, read the result, and treat everything else as upside. If a result feels obviously right, that is the moment to check the inputs hardest.
Step 3 — isolate your variables. Change one field, observe, revert. The live sensitivity list does the ranking for the default inputs; verify it against your own, because dominance shifts when the starting point shifts. Suspiciously tidy answers deserve the same scrutiny as untidy ones.
Step 4 — ask what would have to be true. Take the result you want and work backwards through the inputs until you find the assumption that produces it; then decide honestly whether that assumption is defensible. Most surprises in numbers are surprises about inputs, not about formulas.
Step 5 — record the context, not just the number. Note today’s date and the inputs alongside the $0 output. Six months from now the context is what turns this figure into a trend. Repeating a calculation with the same numbers proves only that the arithmetic is reliable — which is worth knowing.
Where Carried Interest matters in practice
Numbers earn their keep in conversations, and Carried Interest is no exception. In Business & Entrepreneurship discussions around Startup Metrics, this figure decides whether an option stays on the table: it converts an opinionated debate into an arithmetic one, and arithmetic is the only referee both sides accept. If the answer changes your behaviour, it deserves a second run with different assumptions.
Used properly this is a five-minute filter that saves weeks. Compute Carried Interest, reject what fails, and only then bring in the expensive analysis for the survivors. The input you reach for first is usually the one you measured longest ago.
Nothing here is stored or transmitted, so the habit of checking is free: open the page, re-enter current figures, compare with the number you saved last time. A figure nobody can reproduce is a figure nobody will act on twice.
Quick answers: what searchers ask about Carried Interest
What is a typical Carried Interest?
With the example inputs on this page the result is $0, labelled “Profit sits inside the hurdle — no carry until the preferred is paid”. “Typical” varies with situation, which is why every result here ships with its verdict band and its sensitivity list: they turn one figure into a range you can locate yourself inside.
How do I calculate Carried Interest by hand?
Use the stated model — Hurdle = commit × (1+r)^t − commit; carry = % × profit above the hurdle — and substitute in the order the tool prints (it starts from Hurdle = $725,000,000 × (1 + 5%)^6 − capital = $246,569,339). On the example inputs the hand route lands on $0, exactly what the calculator shows. A spreadsheet reproduces it in two or three cells; doing it once by hand is what makes the automated answer trustworthy.
Is the Carried Interest result of $0 good or bad?
The tool answers “what”, not “whether”: $0 carries the verdict “Profit sits inside the hurdle — no carry until the preferred is paid” for the default case, which is a starting interpretation rather than a verdict on your situation. Re-run with your own figures and compare the bands.
How often should I check Carried Interest?
Whenever an input changes by more than a few percent, and otherwise on the rhythm of your decisions — before a purchase, a review, a renewal. Carried Interest is a snapshot, not a subscription; stale snapshots are the most common silent error in Business & Entrepreneurship planning.
What affects Carried Interest the most?
Sensitivity depends on where you start, but the inputs Fund profit realized ($) and Fund size ($) typically move Carried Interest further than the rest because they enter the formula multiplicatively. If you can only measure two things well, measure those and hold the others at conservative defaults.
What does the catch-up do here?
It fronts the GP 100% of distributions after the pref until the GP holds its full 20% share — modeled in its own calculator.
Is carry capital gains?
Mostly ordinary income in the US since 2018's three-year holding rule for specified interests.
Is my data private on this page?
Yes — computation happens locally in your browser, with no account, no tracking of your inputs and nothing sent to a server. The printed formula is the whole story of what happens to your figures.
Glossary for Carried Interest
- Hurdle accrued over 6 years
- $246,569,339 in the default Carried Interest calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- Profit above hurdle
- $0 in the default Carried Interest calculation — one of the secondary figures an experienced reader checks before trusting the primary number.
- Effective carry on total profit
- 0.0 % on the example inputs — a companion figure printed beside the headline of Carried Interest so that no result is read in isolation.
- GP carried interest
- The primary output of this tool: $0 for the default inputs, computed exactly from Hurdle = commit × (1+r)^t − commit; carry = % × profit above the hurdle.
- Worked example
- Every substitution in order, from the example inputs to $0 — the audit trail for the headline figure.
- Verdict band
- The plain-language label — here “Profit sits inside the hurdle — no carry until the preferred is paid” — mapping the computed figure onto experience-based ranges for Business & Entrepreneurship.
Methodology, sources and limits
There is no black box on this page — the engine evaluates Hurdle = commit × (1+r)^t − commit; carry = % × profit above the hurdle. Source of record: ILPA terms standards; IRS §1061. Any other implementation of this model should return the same figure for the same inputs. If one does not, the difference is in its assumptions — which this page prints and that one probably does not.
Nothing here replaces a qualified professional, and nothing here is approximate either — the arithmetic is exact, and the honesty is in the inputs you supply. The promise to the reader is narrow and testable: same inputs, same output, no silent rounding, and no figure presented without the formula that produced it.
Turning this Carried Interest into a decision
Save the number together with its inputs and today’s date; a Carried Interest figure without context is unusable the moment an input changes.
The audience here is people who need one trustworthy number before their next decision. Everything you need to defend the result — formula, substitution, sensitivity, source — is printed above, so the only remaining variable is the honesty of your inputs.