Greenfield Investments: Carry Before the Asset Is Complete

Author: Gert-Tom Draisma / www.TristanFinance.com

First published: 24th of September 2026

Latest update: 24th of September 2026

Status: First Draft

Greenfield investments create a particular challenge for carried-interest calculations because value can be created long before the underlying asset is complete.

A fund may have invested only part of the capital ultimately required to develop an asset while already recognising substantial unrealised appreciation. At the same time, completing the project may require significant additional funding.

This creates an important question:

How much unrealised carried interest exists when an investment has appreciated, but substantial capital still has to be invested before the asset can be completed?

The issue arises particularly in infrastructure, energy, real estate development and other strategies where investments move through distinct stages such as:

Development → Construction → Commissioning → Operations → Exit

A conventional unrealised carry calculation based only on current NAV and capital contributed to date can produce a result that is mathematically correct but economically incomplete.

The central problem is:

Current NAV Does Not Describe the Remaining Funding Required to Create or Preserve That NAV

Greenfield investments therefore provide an important edge case for the treatment of remaining commitments, unrealised value and hypothetical liquidation.

1. The Basic Problem

Consider a fund developing an infrastructure asset.

At the reporting date:

• capital invested to date: €40 million;
• current fair value of the project: €70 million;
• remaining expected construction expenditure: €60 million;
• expected value once completed: €150 million.

Looking only at invested capital and current NAV suggests:

€70m NAV − €40m Invested Capital = €30m Unrealised Gain

A simple calculation might therefore conclude that the fund already has €30 million of unrealised profit on which carried interest could potentially arise.

But the project is not complete.

Another €60 million is expected to be required before the asset becomes operational.

The current €70 million value and the remaining €60 million funding requirement describe different aspects of the same economic position.

Ignoring the latter can materially distort an unrealised carried-interest calculation.

2. Current NAV Is Not the Same as Completed-Project Value

The €70 million NAV represents the fair value of the project in its current state.

It should not be confused with the expected value of the completed asset.

The project currently has:

€70m Current Fair Value

It may ultimately become:

€150m Completed Value

but only after additional capital has been invested and additional development and construction risks have been assumed.

Therefore:

Current NAV ≠ Expected Completed Value

and:

Expected Completed Value ≠ Current Economic Entitlement

The expected €150 million value is relevant to investment forecasting.

It is not automatically the appropriate value for calculating current unrealised carry.

3. Three Different Questions

A greenfield investment can require at least three different calculations.

Current Unrealised Carry

What carried interest results from applying the contractual waterfall to the fund's current economic position?

Conservative Carry Exposure

What carried interest remains if the calculation recognises outstanding funding obligations without assuming corresponding future value creation?

Expected Ultimate Carry

What carried interest might ultimately arise if the project is completed according to the current business plan?

These questions should not be combined.

Therefore:

Current Carry ≠ Conservative Carry ≠ Forecast Ultimate Carry

The first is a calculation of the current contractual position.

The second is a deliberately conservative measurement.

The third is a forecast.

Each may be useful, but they serve different purposes.

4. The Simplest Current-Value Calculation

Assume for the moment that:

• €40 million has been contributed;
• current NAV is €70 million;
• there have been no distributions;
• there is no preferred return;
• carried interest is 20%.

If the calculation simply treats current NAV as hypothetical proceeds, the apparent profit is:

€70m − €40m = €30m

and the apparent carry is:

€30m × 20% = €6m

This calculation is internally consistent.

The problem is not the arithmetic.

The problem is whether the €70 million should be considered independently of the remaining funding required by the project.

As throughout this book:

Calculation Accuracy ≠ Economic Correctness

5. Remaining Fund Commitment and Remaining Project Funding Are Different Concepts

Greenfield investments make it particularly important to distinguish several amounts that can easily be described collectively as "unfunded".

They may include:

1. Remaining Investor Commitment
2. Remaining Fund Commitment to the Project
3. Contractually Committed Project Funding
4. Expected Future Project Expenditure
5. Contingent Additional Funding
6. Uncommitted Future Investment Capacity

These amounts are not necessarily equal.

Suppose the LPs have €100 million of remaining commitment to the fund.

That does not mean €100 million must still be invested in this particular project.

Similarly, a project may require €60 million to reach completion even though only €40 million of that amount is contractually committed today.

Therefore:

Remaining LP Commitment ≠ Remaining Project Funding Requirement

and:

Remaining Project Funding Requirement ≠ Contractually Committed Funding

The carry calculation must identify which future funding obligations are economically relevant to the methodology being applied.

6. The Conservative Approach

One possible methodology is deliberately conservative.

Rather than attempting to forecast the value that future expenditure will create, the calculation assumes that relevant outstanding funding must still be contributed but gives no credit for the additional value that expenditure may generate.

Conceptually:

Adjusted Economic Value = Current NAV − Relevant Remaining Funding Obligation

Using the initial example:

Current NAV:

€70m

Relevant remaining funding:

€60m

Adjusted value:

€70m − €60m = €10m

On this deliberately conservative basis, there is no current positive carry position.

This does not mean that the project is expected to lose money.

It means that the calculation refuses to recognise future value that has not yet been created while recognising future funding that may already be economically unavoidable.

Therefore:

Conservative Outcome ≠ Expected Outcome

7. Why the Conservative Result Can Look Extremely Harsh

The conservative methodology may appear unreasonable when applied to a greenfield project.

The fund has:

• invested €40 million;
• created an asset currently worth €70 million;
• expects to invest another €60 million;
• expects the completed asset to be worth €150 million.

Simply deducting the entire €60 million future expenditure from the current €70 million NAV produces only €10 million of adjusted value.

Yet management may reasonably expect:

€150m Completed Value − €100m Total Cost = €50m Ultimate Profit

The apparent contradiction disappears once the purpose of the two calculations is understood.

The conservative calculation asks:

What is the position if we recognise the funding still required but give no credit for future value creation?

The business plan asks:

What do we expect the project to be worth after that future capital has been successfully deployed?

Those are different questions.

8. Future Expenditure Is Expected to Create Future Value

Greenfield projects differ from many ordinary remaining-commitment situations because future expenditure is often directly associated with further creation of asset value.

A €20 million future management-fee obligation does not ordinarily create a €20 million asset.

A €20 million construction payment may.

This creates a fundamental distinction:

Future Funding That Creates Assets ≠ Future Funding That Merely Consumes Capital

That does not mean construction expenditure should automatically be ignored in the unrealised carry calculation.

It means that the economic interpretation requires care.

The future capital has both:

• a funding consequence; and
• an expected value-creation consequence.

The first may be relatively certain.

The second remains subject to execution risk.

9. The Asymmetry Is Deliberate

A conservative methodology can therefore be intentionally asymmetric.

It may recognise the remaining funding obligation without recognising the expected future value creation.

This is not an attempt to estimate fair value.

The NAV already performs that function.

It is an attempt to establish a conservative carry position.

The logic is:

Known or Contractually Relevant Future Funding → Recognise

Expected Future Development Profit → Do Not Anticipate

This produces an intentionally cautious result.

Such a methodology can be useful where unrealised carry is used for internal allocation, compensation, reporting or other purposes where overstating an uncertain entitlement would be undesirable.

10. The Alternative: Hypothetical Drawdown

Instead of deducting remaining funding from NAV, another methodology is to introduce the relevant funding requirement as a hypothetical contribution.

Suppose:

• historical contribution: €40 million;
• current NAV: €70 million;
• remaining relevant funding: €60 million.

The hypothetical calculation could introduce:

€60m Additional Contribution

and then run the waterfall using the resulting economic history.

Without a time-based hurdle, this may sometimes produce a result similar to simply deducting €60 million from NAV.

With a preferred return, however, the two methods can diverge materially.

This is because:

NAV Adjustment Changes Value

whereas:

Hypothetical Drawdown Changes Cash-Flow History

The latter can affect both capital and hurdle calculations.

Therefore:

Same Net Economic Value ≠ Necessarily Same Waterfall Result

11. Timing Matters

Assume a project requires another €60 million of funding.

That amount will not necessarily be contributed immediately.

It may be drawn:

• €10 million next month;
• €20 million six months later;
• €20 million the following year;
• €10 million at commissioning.

If the waterfall contains an IRR hurdle or preferred return, treating the entire €60 million as though it were contributed today can produce a different result from modelling the expected drawdown schedule.

But doing the latter introduces assumptions.

The model now needs to predict:

• when capital will be required;
• how much will be required;
• whether construction remains on schedule;
• whether project debt remains available;
• whether contingencies are used;
• whether the project scope changes.

This illustrates the trade-off between precision and objectivity.

More Detailed Assumptions ≠ More Reliable Answer

A simple conservative methodology may be less predictive but more reproducible.

12. Greenfield Carry and the Investment Period

The meaning of remaining commitment also changes over the life of a fund and project.

During active construction, remaining capital may be expected to create additional project value.

After commissioning, remaining fund commitments may instead be available primarily for:

• management fees;
• fund expenses;
• follow-on expenditure;
• reserves;
• contingencies.

The same nominal amount of unfunded commitment can therefore have very different economic significance at different stages.

Thus:

Same Remaining Commitment + Different Fund or Project Stage ≠ Same Economic Meaning

A robust calculation should understand where the project sits in its lifecycle.

13. Stage 1 — Development

At the development stage, relatively little capital may have been invested while substantial value has already been created through:

• land rights;
• permits;
• concessions;
• grid connections;
• environmental approvals;
• planning permissions;
• offtake arrangements;
• financing arrangements;
• engineering work;
• commercial contracts.

Suppose:

• capital invested: €10 million;
• current fair value: €25 million;
• remaining expected project cost: €90 million.

The project appears to have created:

€25m − €10m = €15m

of unrealised value.

But the project remains highly dependent on future funding and execution.

A carry calculation based solely on the €15 million apparent gain may therefore present a very different picture from a calculation that recognises the project's remaining funding requirement.

14. Stage 2 — Construction

Assume construction begins.

The position becomes:

• cumulative capital invested: €40 million;
• NAV: €70 million;
• remaining expected cost: €60 million.

The project has progressed materially.

Execution risk may have fallen.

But substantial funding remains necessary.

A current-NAV calculation indicates €30 million of unrealised gain.

A conservative remaining-funding calculation may indicate no positive carry.

Both results can be correct within their respective methodologies.

The critical requirement is that the methodology be clearly defined.

15. Stage 3 — Cost Overrun

Now assume expected remaining construction expenditure increases from €60 million to €80 million.

Current NAV remains €70 million.

Nothing has changed in reported NAV.

But the future funding requirement has increased by €20 million.

Under a calculation that ignores remaining funding, nothing happens to unrealised carry.

Under a methodology that incorporates remaining funding, the carry position can deteriorate materially.

This produces an important principle:

Unchanged NAV ≠ Unchanged Carry Position

where the carry methodology incorporates future funding obligations.

The economic state of the project has changed even though the reported asset value has not.

16. Cost Overruns Are Particularly Important

Cost overruns are common examples of why greenfield carry needs special treatment.

Assume:

Original expectation

• total project cost: €100 million;
• completed value: €150 million;
• expected profit: €50 million.

Revised expectation

• total project cost: €120 million;
• completed value: €150 million;
• expected profit: €30 million.

The completed asset value has not changed.

But expected project economics have deteriorated by €20 million.

If the project is still under construction, a carry methodology concerned only with current NAV may not fully capture the significance of the additional capital required.

Greenfield carry therefore requires attention to both sides of the project economics:

Asset Value

and:

Capital Still Required

17. Stage 4 — Commissioning

Assume the project approaches completion.

The fund has now invested €95 million.

NAV is €140 million.

Only €5 million remains to complete commissioning.

The economic picture has changed substantially.

The project now has:

€140m Current NAV − €95m Capital Invested = €45m Current Unrealised Gain

and only €5 million of remaining expected funding.

A conservative adjusted value would be:

€140m − €5m = €135m

Compared with €95 million invested, the project now has substantial economic headroom even under a conservative methodology.

The difference between current-value and conservative calculations has narrowed dramatically.

This is exactly what should be expected as the project approaches completion.

18. Stage 5 — Operational Asset

Assume the final €5 million is invested and the asset becomes operational.

Total capital invested is now:

€100m

The asset is worth:

€150m

There is no remaining construction funding.

The project has:

€50m

of value above invested capital.

At this point, the greenfield funding issue largely disappears.

The asset can now be analysed more like a conventional operating investment, subject to any continuing capital expenditure, reserves or other obligations.

The progression can therefore be represented as:

Large Future Funding Requirement + High Execution Risk

↓

Declining Future Funding Requirement + Declining Execution Risk

↓

Completed Asset + Conventional Investment Economics

19. A Full Project-Lifecycle Illustration

Consider the following simplified development:

Looking only at NAV less invested capital produces:

The cost-overrun stage appears identical to the preceding stage.

Economically, it is not.

The project now requires €20 million more capital to reach the same expected completed value.

That information is invisible in the simple NAV-minus-invested-capital calculation.

20. Conservative Adjusted Value Across the Project Lifecycle

Now apply the deliberately conservative adjustment:

Adjusted Value = NAV − Remaining Relevant Project Funding

This gives:

This calculation is intentionally severe during the early stages.

It should not be interpreted as a valuation of the project.

The project is not necessarily worth negative €65 million during development.

The calculation merely says that if €90 million of relevant future funding is recognised while no future value creation is anticipated, the current €25 million NAV does not cover that obligation.

Therefore:

Adjusted Carry Value ≠ Fair Value

The distinction is essential.

21. A Worked Carry Comparison

Assume:

• carried interest: 20%;
• no preferred return for the moment;
• carry applies only after relevant capital has been returned.

At the early construction stage:

• invested capital: €40 million;
• NAV: €70 million;
• remaining funding: €60 million.

Method A — Ignore Remaining Funding

Hypothetical profit:

€70m − €40m = €30m

Carry:

€30m × 20% = €6m

Method B — Conservative Remaining-Funding Adjustment

Adjusted NAV:

€70m − €60m = €10m

Compared with €40 million already invested, there is no positive carry position.

Carry:

€0

The difference is:

€6m

even though both calculations use exactly the same current NAV.

The difference arises entirely from the treatment of future funding.

22. The Cost-Overrun Example

Now increase remaining funding from €60 million to €80 million while NAV remains €70 million.

Under Method A:

Hypothetical profit remains:

€30m

Carry remains:

€6m

Under Method B:

Adjusted value becomes:

€70m − €80m = (€10m)

Carry remains:

€0

The carry number does not become negative merely because adjusted value is negative. Instead, the project is substantially further away from generating positive carry.

The important observation is that Method A shows no change whatsoever while Method B captures the deterioration in the project's funding position.

23. Late Construction

Now assume:

• invested capital: €80 million;
• NAV: €125 million;
• remaining funding: €20 million.

Method A

Profit:

€125m − €80m = €45m

Carry:

€45m × 20% = €9m

Method B

Adjusted value:

€125m − €20m = €105m

Profit above invested capital:

€105m − €80m = €25m

Carry:

€25m × 20% = €5m

The difference between the two methodologies has narrowed from €6 million to €4 million as the remaining funding requirement declines.

24. Commissioning

At commissioning:

• invested capital: €95 million;
• NAV: €140 million;
• remaining funding: €5 million.

Method A

Profit:

€140m − €95m = €45m

Carry:

€9m

Method B

Adjusted value:

€140m − €5m = €135m

Profit:

€135m − €95m = €40m

Carry:

€8m

The difference is now only €1 million.

25. Completion

Once complete:

• invested capital: €100 million;
• NAV: €150 million;
• remaining funding: nil.

Both methods converge:

Profit:

€150m − €100m = €50m

Carry:

€50m × 20% = €10m

This convergence is important.

The conservative methodology does not permanently reduce carry.

It delays recognition until the future funding uncertainty has progressively disappeared.

Conceptually:

Project Completion → Remaining Funding Approaches Zero → Conservative and Current-Value Calculations Converge

26. Preferred Return Makes the Difference More Important

The examples above deliberately ignore preferred return.

Once a preferred return is introduced, remaining funding affects more than the amount of capital.

It can also affect the hurdle.

Suppose the remaining €60 million is expected to be contributed over the next two years.

If it is introduced as hypothetical future contributions, each contribution may have:

• its own economic date;
• its own preferred-return accrual;
• its own effect on return-of-capital balances.

A simple NAV deduction does not replicate those timing effects.

Therefore:

Remaining Funding Adjustment ≠ Hypothetical Drawdown Model

where the waterfall is time-sensitive.

This is why the methodology must be defined rather than inferred.

27. Project-Level Debt

Greenfield projects are often financed using both equity and debt.

Suppose the project requires another €60 million to complete, but €40 million is expected to be funded by committed project debt.

Only €20 million may ultimately need to be funded by the fund.

It would therefore be inappropriate automatically to treat the entire €60 million gross construction budget as an LP funding obligation.

The analysis must distinguish:

Gross Remaining Project Cost

from:

Committed External Financing

from:

Net Remaining Equity Requirement

For example:

Remaining construction cost:

€60m

Committed project debt:

€40m

Expected remaining equity requirement:

€20m

The relevant amount for a particular carry methodology may therefore be €20 million rather than €60 million.

But this conclusion depends on the certainty and conditions of the financing.

28. Committed Debt Is Not the Same as Expected Debt

A financing facility may exist but remain conditional.

Possible conditions include:

• construction milestones;
• equity-first requirements;
• cost-to-complete tests;
• debt-service requirements;
• completion guarantees;
• technical certifications;
• regulatory approvals.

A model should therefore distinguish between financing that is genuinely available and financing merely expected to become available.

Thus:

Expected Financing ≠ Committed Financing ≠ Unconditional Funding Availability

A conservative carry methodology may treat these categories differently.

29. Cost-to-Complete Risk

A further complication is that the current estimate of remaining funding may itself be uncertain.

A project expected to require €60 million may ultimately require:

• €55 million;
• €60 million;
• €75 million;
• €100 million.

Greenfield carry therefore introduces a question that does not arise as sharply with a completed investment:

Which cost-to-complete estimate should be used?

Possible approaches include:

• current approved budget;
• contractual commitments;
• engineer's cost-to-complete estimate;
• base case plus contingency;
• maximum committed equity;
• another defined amount.

The important requirement is consistency.

A carry methodology should not opportunistically change the definition depending on which estimate produces the preferred outcome.

30. Contingency

Suppose:

• base remaining construction cost: €50 million;
• contingency reserve: €10 million.

Should relevant remaining funding be:

€50m

or:

€60m?

There is no universal answer.

The economic specification must define whether contingency is treated as:

• expected expenditure;
• available reserve;
• potential funding;
• or excluded unless actually required.

Again:

More Detailed Assumption ≠ More Reliable Answer

A simple objective rule may be preferable to repeated subjective reassessment.

31. Cancelled Projects

Greenfield investments can also fail before completion.

Suppose:

• €40 million has been invested;
• the project was previously valued at €70 million;
• another €60 million was expected to be invested;
• a regulatory approval is subsequently refused;
• current recoverable value falls to €15 million.

The waterfall must now recognise the new economic position.

The project has not merely failed to create expected future value.

A substantial portion of already invested capital has also been lost.

The carry calculation must therefore respond to:

NAV Reduction

rather than attempting to preserve previously expected development economics.

If unrealised carry had previously been recognised, that carry may also fall or reverse depending on the applicable waterfall and carry-recognition methodology.

32. Greenfield Carry Can Move Backwards

This illustrates another important point.

Unrealised carry is not necessarily cumulative in one direction.

A project may move:

Development Success → Higher NAV → Unrealised Carry

followed by:

Construction Problem → Lower NAV / Higher Cost to Complete → Lower Carry

and potentially:

Project Failure → No Carry

Therefore:

Previously Calculated Unrealised Carry ≠ Permanently Earned Carry

This links directly to the distinction between interim and final carry developed elsewhere in this book.

33. Multiple Greenfield Projects

The analysis becomes more complex where a fund owns multiple greenfield projects.

Suppose:

Whether these projects should be analysed individually or collectively depends on the waterfall architecture.

Under a whole-fund waterfall, the relevant economic position may be aggregated.

Under deal-by-deal or segregated arrangements, project-level funding requirements may need to remain separate.

Therefore:

Ability to Aggregate Project Data ≠ Economic Validity of Aggregation

A successful nearly completed project should not automatically offset the funding requirements of another project unless the waterfall permits that economic aggregation.

34. Remaining Commitment at Fund Level

A further complication arises where the fund's remaining investor commitments are insufficient to cover the aggregate expected equity requirements of its projects.

Suppose:

• remaining LP commitments: €100 million;
• remaining expected equity requirements across projects: €130 million.

The fund has a potential €30 million funding gap.

That gap may be expected to be addressed through:

• project debt;
• asset sales;
• co-investment;
• additional investors;
• recycling;
• refinancing;
• reduced project scope;
• other sources.

But until those sources are sufficiently certain, the funding gap is economically relevant.

This demonstrates why:

Remaining LP Commitment ≠ Remaining Portfolio Funding Requirement

Both may need to be understood.

35. Excess Remaining Commitment

The opposite can also occur.

Suppose:

• remaining LP commitments: €150 million;
• expected remaining project equity requirements: €60 million.

It may be excessively conservative to deduct the full €150 million from NAV when only €60 million is expected or contractually required for existing projects.

The remaining €90 million may represent:

• capacity for new investments;
• reserves;
• management fees;
• follow-ons;
• or simply uncalled commitment that may never be drawn.

The relevant amount therefore depends on the purpose and definition of the unrealised carry methodology.

36. The Conservative Method Still Needs a Definition

"Deduct the remaining commitment" sounds objective.

For a greenfield fund, however, the term remaining commitment may hide several different concepts.

A robust methodology should define precisely whether it deducts:

• all remaining LP commitment;
• expected remaining equity funding;
• contractually committed project funding;
• approved cost-to-complete;
• maximum expected funding;
• or another defined measure.

Without that definition:

Simple Formula ≠ Objective Methodology

The input must be defined as carefully as the formula.

37. Forecasting Creates a Slippery Slope

It can be tempting to improve the conservative calculation by forecasting future project economics.

For example:

• current NAV: €70 million;
• remaining expenditure: €60 million;
• expected completed value: €150 million.

One might attempt to calculate expected future value creation:

€150m − €70m − €60m = €20m

and somehow incorporate that €20 million into current carry.

But this immediately introduces additional assumptions.

What if:

• completion is delayed;
• construction costs increase;
• operating assumptions change;
• discount rates increase;
• the offtake agreement changes;
• project debt becomes more expensive;
• commissioning fails;
• the completed asset is worth €130 million rather than €150 million?

The model quickly stops being an unrealised carry calculation and becomes a project valuation or forecasting model.

Therefore:

Unrealised Carry Calculation ≠ Project Business Plan

38. Keep Valuation and Carry Separate

The valuation process should determine current fair value using the applicable valuation methodology.

The carry process should then apply the contractual or defined carry methodology to that value and the relevant cash-flow obligations.

The carry model should not ordinarily recreate the project valuation internally.

Thus:

Project Information → Valuation Process → Current NAV

followed by:

Current NAV + Relevant Funding Information + Waterfall Rules → Unrealised Carry

This separation improves control and avoids embedding hidden valuation assumptions inside the carry model.

39. Current Value, Conservative Value and Forecast Value

For a greenfield project, it can therefore be useful to maintain three clearly labelled measures.

Current Fair Value

The current NAV determined by the valuation process.

Conservative Carry Value

The value used in the unrealised carry calculation after applying the defined treatment of relevant future funding.

Forecast Completed Value

The expected future value used for investment management and forecasting.

For the original example:

These values are very different because they answer very different questions.

They should never be presented as competing estimates of the same thing.

40. Greenfield Funds Make Scenario Analysis Particularly Useful

Because project economics can change significantly before completion, scenario analysis can provide useful context around an unrealised carry calculation.

For example:

These scenarios may be useful for understanding possible future carry.

But they should remain separate from the current carry calculation.

Therefore:

Scenario Carry ≠ Current Carry Entitlement

The scenario is information about potential future economics.

It is not a substitute for the defined current methodology.

41. A Greenfield Carry Dashboard

For a greenfield strategy, a useful carry report might therefore show:

This makes the assumptions visible.

It prevents a single unrealised carry number from concealing the fact that a large amount of future capital is still required.

42. The Calculation Should Be Reproducible

A good greenfield carry methodology should allow another person to reproduce the calculation from the same data.

That requires clear definitions of:

• current NAV;
• invested capital;
• remaining commitment;
• remaining project funding;
• project debt;
• expected equity requirement;
• contingency;
• calculation date;
• hypothetical drawdown dates, if used;
• preferred-return treatment;
• aggregation level;
• carry percentage;
• treatment of previously realised carry.

Therefore:

Carry Result + Calculation Date + Funding Definition + Methodology = Reproducible Result

Without those elements, the calculation may be impossible to defend later.

43. The Most Conservative Result Is Not Necessarily the Most Useful Result

A methodology that deducts every possible future funding amount may produce a number that is unquestionably conservative but economically uninformative.

For example, deducting the entire remaining fund commitment from the NAV of a single project may make little sense if most of that commitment is available for unrelated future investments.

Conservatism should therefore be disciplined.

The objective is not:

Lowest Possible Carry

The objective is:

Defined + Objective + Reproducible + Appropriately Conservative

A methodology should be conservative because of how uncertainty is treated, not because every available negative assumption has been accumulated.

44. Greenfield Investments and Unrealised Carry

Greenfield investments expose the limitations of treating unrealised carry as a simple percentage of unrealised gain.

The naïve formula:

Unrealised Carry = Carry Percentage × Unrealised Gain

can be particularly misleading where substantial funding remains outstanding.

As established in Chapter 4:

Unrealised Carry = Total Carry − Realised Carry

The total carry calculation must therefore incorporate the economic treatment of the remaining funding obligation where required by the methodology.

Greenfield investments make that principle especially visible.

45. Same NAV, Different Economic Position

Consider two investments.

Investment A — Operational Asset

• capital invested: €40 million;
• NAV: €70 million;
• remaining required funding: nil.

Investment B — Greenfield Asset

• capital invested: €40 million;
• NAV: €70 million;
• remaining required funding: €60 million.

Both have:

NAV = €70m

Both appear to have:

€30m Unrealised Gain

But their future funding positions are completely different.

Therefore:

Same NAV + Different Future Funding Obligations ≠ Same Economic Position

Depending on the defined carry methodology, they may also have very different unrealised carry positions.

This is the central lesson of the edge case.

46. Greenfield Carry Is Ultimately a Question of Economic Perimeter

The issue is not whether NAV is correct.

The issue is what economic obligations should be included when applying the waterfall to an incomplete investment.

The relevant perimeter may include:

• value already created;
• capital already contributed;
• funding already contractually committed;
• remaining project obligations;
• committed financing;
• preferred return;
• prior distributions;
• realised carry;
• other fund obligations.

Therefore:

Correct NAV + Wrong Economic Perimeter = Wrong Carry

This is another application of one of the central principles of this book.

47. Data Requirements

A greenfield carry calculation may require information beyond the ordinary fund accounting records.

Relevant data can include:

• capital invested to date;
• current fair value;
• remaining investor commitment;
• project budget;
• cost incurred to date;
• remaining cost to complete;
• committed construction contracts;
• contingencies;
• committed project debt;
• undrawn debt facilities;
• expected remaining equity requirement;
• project stage;
• expected completion date;
• actual and expected drawdown dates;
• realised proceeds;
• prior carry;
• current waterfall state.

Not all of this information belongs inside the carry engine.

But the engine must receive the inputs required by the defined methodology.

48. Control Requirements

Several controls are particularly important.

NAV Control

The NAV used in the carry calculation should reconcile to the approved valuation source.

Funding Control

The remaining funding amount should reconcile to the source specified by the methodology.

Debt Control

Any committed financing deducted from gross project funding requirements should be supported by the relevant financing information.

Stage Control

The project's lifecycle classification should be consistent with the underlying project information.

Waterfall Control

The adjusted economic value should then be processed through the same controlled waterfall logic used elsewhere.

The greenfield adjustment should not become an alternative uncontrolled carry calculation.

49. Reconciliation Through Completion

One useful control is to follow the calculation through the project lifecycle.

In the earlier example:

As the project completes:

Remaining Funding → Zero

and therefore:

Adjusted Value → NAV

The special greenfield adjustment disappears naturally.

That convergence is an important reason why the methodology can be conceptually robust.

50. The Central Distinctions

Greenfield carry requires several concepts to remain separate:

Current NAV ≠ Completed-Project Value

Current Carry ≠ Forecast Ultimate Carry

Remaining LP Commitment ≠ Remaining Project Funding

Remaining Project Funding ≠ Contractually Committed Funding

Gross Project Cost ≠ Net Equity Funding Requirement

Expected Financing ≠ Committed Financing

Adjusted Carry Value ≠ Fair Value

Conservative Outcome ≠ Expected Outcome

Unrealised Carry Calculation ≠ Project Business Plan

Same NAV + Different Future Funding Obligations ≠ Same Economic Position

Each distinction prevents the carry model from answering one question using data intended to answer another.

51. Why This Is an Edge Case

Greenfield investments are an edge case because the current value of an investment cannot always be understood independently from the capital still required to complete it.

For a completed asset, current NAV may provide a relatively straightforward hypothetical realisation value.

For an incomplete asset, the fund may simultaneously own:

Current Project Value

and face:

Future Capital Requirements Necessary to Complete the Investment

The interaction between those two amounts can materially affect the interpretation of unrealised carry.

The issue is therefore not simply valuation.

It is the economic perimeter of the hypothetical waterfall.

52. Final Principle

The greenfield problem can be represented as:

Capital Invested to Date

↓

Current Project Value

↓

Remaining Funding Requirement

↓

Determine Relevant Funding Obligation

↓

Determine Carry Calculation Methodology

↓

Apply Waterfall

↓

Calculate Current Unrealised Carry

while separately maintaining:

Expected Future Funding + Expected Future Value Creation → Forecast Ultimate Economics

The two should not be confused.

The central lesson is:

An incomplete asset can have substantial current value while still requiring substantial future capital. A carried-interest calculation that recognises the first while ignoring the second may describe the current valuation correctly but the current economic carry position incorrectly.

For greenfield investments, therefore:

Value Already Created + Capital Still Required + Waterfall Architecture = Current Carry Position

And, as the project progresses toward completion:

Remaining Funding Falls → Execution Uncertainty Falls → Current and Ultimate Economics Converge

The objective is not to predict the final carried interest perfectly.

It is to calculate the current position using a methodology that is:

Defined + Objective + Reproducible + Conservative Where Appropriate + Defendable.

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