Fund Structure
Carried Interest Clawback
A provision requiring GPs to return previously received carry if the fund's final performance doesn't justify it.
A carried interest clawback requires the GP to return excess carry distributions if the fund's overall performance at termination doesn't warrant the amount of carry already distributed. This commonly occurs when early exits generate carry but later investments decline in value. Clawback provisions typically require GPs to personally guarantee the repayment, though enforcement can be challenging.
In Practice
A GP received $8M in carry from early exits. At fund termination, total fund performance only justifies $5M in carry. The clawback provision requires the GP to return $3M to LPs.
Why It Matters
Clawback provisions protect LPs from overpaying carry on interim results. However, practical enforcement is difficult — GPs may have already spent or invested the carry, making collection uncertain.
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