Carried Interest: Why Would GP Distribute Funds?

CFA Level II
#1

Hi

I understand that the carried interest formula is min(NAVDBt-NAVBDt-1,NAVBDt-Committed Capital).

What I don’t understand is: if the carried interest is calculated on NAVBD, why would the GP distribute any capital? Surely that reduces the NAVAD for the following year and so makes it ‘harder’ to earn carry in that year?

Google spreadsheet here that shows the maths: https://docs.google.com/spreadsheets/d/1pw_ayj94izxAbwI1SszJxk7qXS2AjOu6YhRpvxBtVm4/edit?usp=sharing

Thanks for any help.

#2

Why should a company pay out dividends when they can just throw a wild party every night? Why should a business owner pay their employees? Why do I need to pay my bills? Why??? It’s not a matter of why, it’s what happens if you don’t.