Carry

Carried interest (carry) is the general partner's share of the fund's investment profits, typically 20% of gains after LPs have received their invested capital back (sometimes with a preferred return hurdle of 6–8%). It is the primary economic incentive for fund managers and the compensation structure that aligns GP interests with LP outcomes.

In secondary markets and SPVs, carry functions identically: the SPV operator takes 20% (or more) of the appreciation. This is a real cost to investors that is sometimes obscured by the headline "no management fee" marketing of some secondary SPV operators. If the carry is 20% and the position appreciates 50%, the investor receives 40% net while the operator takes 10%.

Illustrative example: an SPV buys $1M of pre-IPO shares. At exit, the shares are worth $2M — a $1M gain. The SPV charges 20% carry on gains. The operator takes $200,000; the investors receive $1,800,000 total ($800,000 net gain on a $1M investment — 80% of the gain rather than 100%).

The edge the pros know: carry structures vary considerably. Some SPVs take carry on all proceeds (not just gains above cost basis). Others apply a "2-and-20" structure (2% annual management fee plus 20% carry). A few charge higher carry (25–30%) on the first tranche of gains. Always model the net-to-investor return after carry and fees, not the gross multiple.