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Also known as incentive fees, promote or carried interest, are fees charged by investment advisors, or managers, after a predetermined investment performance has been attained. Carried interest represents a re-allocation of equity and should be treated accordingly for accounting, tax or regulatory purposes.
Source: Global | Date: 23 March 2020 | ID: D0391 | Version: 4
A re-allocation of profits from the investor's capital account to the investment manager capital account based on the ability of the latter party to outperform a certain predetermined benchmark. Carried interest is structured as a re-allocation of equity within the capital accounts rather than a straight charge to the investment manager generally due to tax purposes.
When returns are paid to more than one party in a vehicle, the order of priority for cash flows of these is set out in the waterfall calculation.