In the example in Section 4 of Reading 49, it says, that the Carried Interest is calculated based on the total return method and on the first alternative of this method (GP receives only carried interest if fund has returned entire committed capital to LPs). Looking at the calculation on page 76, carried interest is paid when NAV exceeds committed capital. Is that correct? Many thanks.
Yes carried interest is paid only when the NAV before distributions exceeds comitted capital.
And the only trick there is sometimes carried interest could be on all committed capital, and other times it could be deal by deal committed capital. That will be clear in the vingette, and I not clear, go with on all committed capital
I dont think that the OP’s question has been answered. He asked :
In the example in Section 4 of Reading 49, it says, that the Carried Interest is calculated based on the total return method and on the first alternative of this method (GP receives only carried interest if fund has _ returned entire committed capital _ to LPs). Looking at the calculation on page 76, carried interest is paid _ when NAV exceeds committed capital. _ Is that correct?
So the original (and my) question is : the first definintion seems to contradict the answer. The definition says that carried interset paid when the fund has RETURNED entire committed capital : i.e. committed capital $100m. 3 years later the fund has paid out $100m back to investors, so carried interest paid from that point on any increase.
But the actual answer is that carried interset is when the NAV exceeds committed capital. Which is completely different, becuase without a clawback, the GP might get the committed interst when the NAV increases above the committed capital, but the next year the NAV drops below the committed capital.
But regardless, looks like the original defiiniton in the notes is incorrect, and need to stick with the answer given ?
Thanks. bertieb