Carried Interest

"[...] represents a portion of the share of profits of a fund's investments paid to a fund manager in connection with its fund management activities. Typically, the fund manager will receive a management fee as a percentage of assets under management (typically 1 or 2% of AUM). In addition, in a classic fund waterfall, the fund manager will also be entitled to a portion (20% is the norm) of the profits on investments after investors have received back their commitment plus a preferred return (8% preferred return is typical).

It is this allocation of profits that represents the carried interest. The fund manager will then decide how to apportion carried interest between its team members, in order to promote retention and incentivise performance.

When considered from an employment perspective, carry is a valuable status indicator and can be a key attraction for individuals".

Source: https://www.dentons.com/en/insights/articles/2024/may/21/carried-interest-a-closer-look