Carried interest (carry)
The GP's share of a fund's profits — typically 20% — paid only after LPs get their invested capital back.
Carried interest, usually shortened to "carry," is how a fund manager actually makes money from good investing, as distinct from the management fee that covers day-to-day operating costs. The standard market rate is 20% of profits, paid to the GP once the fund has returned LPs' original capital (and sometimes a minimum "hurdle rate" return on top of that).
Because carry is paid on profit, not on capital deployed, it aligns GP incentives with LP outcomes in theory — a GP who returns nothing gets no carry regardless of how much they charged in fees along the way. Some funds also use "European" waterfall structures (carry paid only after the whole fund is profitable) versus "American" waterfalls (carry paid deal-by-deal), which materially changes when a GP gets paid relative to when LPs are made whole.
Why it matters
If you're becoming an LP, ask directly whether carry is calculated on a whole-fund or deal-by-deal basis — it changes how much of a GP's incentive is aligned with your total return versus their best individual picks.