【正文】 ns of the basic story. Carried interest basis: It is the threshold that must be exceeded before the GPs can claim a profits: the majority of funds use the mitted capital, but sometimes the investment capital is used. Consider two different carried interest structures for a ?100 ml. fund. Both structures have management fee of 2% per year (on mitment capital) for all ten years. Under structure I, the fund would receive a 20% carry with a basis of all mitted capital. Under structure II, the GPs would receive a 18% carry with a basis of all investment capital. Suppose the total exit proceeds from all investments are ?200 ml over the entire life of the fund. Under structure I carried interest would be 20%*(200100) =?20 ml. Under structure II, lifetime fees are 2%*?100 ml*10 years =?20 ml. The investment capital is therefore ?80 ml. The carry is hence 18%*(20080)= ml. For what amount of exit proceeds would these two structures yield the same amount of carried interest? The answer is ?280 ml (carry equal to ?36 ml). Timing: The portion of mitted capital that has already been transferred from the LPs to the GPs is called contributed capital. Many funds require the return of (at least a portion of) the contributed before any carried interest can be returned. Clearly, this timing is more GPfriendly than requiring the return of the whole basis. Hurdle return: Sometimes a given rate of return is promised to the LPs before the GPs can get the carried interest. This rate is called hurdle return (or priority return). Most hurdle return also have a catch up provision, which provides the GPs with a greater share of the profits once the priority return has been paid and until the preset carry percentage has been reached. Consider a ?100 ml fund with a 20% carry on mitment capital, a priority return of 8%, and a 100% catchup. Imagine that all mitted capital is drawn down on the first day and that there are total exit proceeds of ?200 ml, with ?108 ml of these proceeds ing one year after the first investment, ?2 ml. ing one year later, and ?90 ml. ing the year after that. Under this rule all ?108 ml would go to the LPs, satisfying the 8% priority return. On year later the catch up provision implies that the whole ?2 ml would go the GPs, thus receiving the 20% of the profits. The final distribution would be split ?72 ml for the LPs and ?18 ml for the GPs. The presence of a priority return and a catchup provision affect the timing of the carry, but not the amount. In contrast, the absence of catch up provision would have meant that the GP would have received only 20%*(200–108)= ml. Clawback: The early payment of carried interest can cause plications if the fund begins well, but performs poorly afterwards. The refund of carried interest is acplished with a contractual provision known as clawback. This provision is plicated by many factors: ., the GPs do not have the money (usually there is a guarantee by individual GPs), or specification of whether clawback will be or gross of taxes already paid by the GPs. Suppose that a ?100 ml fund has a 20% carry with a basis of all mitted capital, but allows carried interest to be paid as long as contributed capital has been returned to LPs. Imagine that at the third year, contributed capital is ?50 ml and the first exit produces ?60 ml. Given the carry rules, the fund would return the first ?50 ml. to its LPs, and the remaining ?10 ml would be split as ?8 ml for the L