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CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt

A fund has a carried interest of 20% with an 8% hurdle rate and a full catch-up, and distributions follow a whole-of-fund waterfall. LPs contributed $100 million, and the fund distributes a total of $150 million after the hurdle has been met and the GP has fully caught up. Ignoring fees and compounding detail, the carried interest paid to the GP is closest to:

With a full catch-up after the hurdle, the general partner ends up with 20% of total profits. Total profit is $150 million minus $100 million, or $50 million, so carried interest is about $10 million.

  1. A$8 million
  2. B$10 millionCorrect
  3. C$12 million

Explanation

With a full catch-up, once the hurdle is met and the catch-up completes, the GP holds 20% of total profit. Profit = 150 - 100 = $50 million; carry = 20% x 50 = $10 million. Choosing 20% of the amount above the hurdle only would give a different, incorrect figure.

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