What it is
Carried interest (“carry” or “promote”) is the GP’s share of profits after LPs receive their capital and preferred return. A 20% carry aligns the GP with LP outcomes: the GP earns it only when the investments make money. A clawback requires the GP to give back carry if, at the end, it received more than its agreed share of total profits.
How it works
Clawbacks are only as good as the money behind them. If carry has been spent or distributed to individual principals, recovering it may require litigation. Escrow (a portion of each carry payment held back) and personal guarantees from principals make clawbacks collectible.
Example: using the waterfall example, the GP received $8,400 on Deal A but is entitled to only $6,000 (20% of $30,000 total profit). The $2,400 excess comes back to LPs; with a 30% escrow, $2,520 of the original $8,400 is already held and can cover it.Good for LPs vs. watch out for
✓ Good for LPs
- Clawback tested at fund level with interim checks
- Carry escrow or holdback
- Clawback net of taxes only up to a defined cap, or gross
- Several-and-joint guarantees from carry recipients
⚠ Watch out for
- Clawback with no escrow or guarantee
- Only tested once at the end of a 10+ year life
- Carry vesting to principals with no claw-back mechanism
- Carry taken on unrealized gains or revaluations
How Story Samurai Investments handles it
Carry is 20% after return of capital and the 8% pref (LPA §5.2(d)). The template includes a fund-level clawback and a carry escrow of [PLACEHOLDER]% held by [PLACEHOLDER – escrow agent] (LPA §5.3–5.4). The GP bears no carry or fee on its own commitment. Treatment of taxes in the clawback is [PLACEHOLDER – counsel to specify].
Based on our template documents (TEMPLATE, DRAFT FOR ATTORNEY REVIEW, NOT FOR USE). The final Limited Partnership Agreement controls.
Where to find it in the documents
- LPA §5.2(d), §5.3, §5.4
- PPM §1
- Risk Factors #9