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

First published: 24th of September 2026

Latest update: 5th of October 2026

Status: First Draft

1. The Second Allocation Problem

The fund waterfall answers an important question:

How much carried interest has been generated?

It does not answer another equally important question:

Who owns that carried interest?

These are two separate allocation problems.

The first allocation takes place between the investors and the GP or other carry recipient. It is governed by the fund waterfall.

The second allocation takes place within the GP-side economic structure. It determines how the resulting carried interest is divided among the partners, investment professionals and other participants entitled to share in it.

Conceptually:

Fund Economics → Fund Waterfall → LP/GP Allocation

followed by:

GP Carry → Carry Plan → Participant Allocation

These processes are connected, but they should not be confused.

A perfectly calculated fund waterfall can produce the correct amount of GP carry while the subsequent participant allocation is wrong.

Conversely, a perfectly maintained participant cap table cannot correct an incorrect fund waterfall.

The complete process therefore requires both layers to be correct:

Correct Fund Carry + Correct Participant Allocation = Correct Individual Carry

2. Fund Carry Is Not Individual Carry

Suppose a fund has generated €20 million of carried interest.

That €20 million is the output of the fund waterfall.

It is not necessarily the economic entitlement of any individual person.

The €20 million might ultimately be divided between:

• founders;
• managing partners;
• investment partners;
• principals;
• investment professionals;
• operating partners;
• other employees;
• external participants;
• corporate entities;
• or an unallocated or reserved pool.

The allocation might also differ between investments, fund vintages, strategies or other economic populations.

The first principle of participant-level carry is therefore:

Fund Carry ≠ Individual Carry

This sounds obvious.

Operationally, however, the distinction has significant consequences.

A system capable of calculating the fund waterfall is not necessarily capable of determining individual participant entitlements.

Similarly, a participant cap table containing ownership percentages cannot determine individual carry unless it receives the correct carry amount from the relevant underlying economic pool.

The two layers need to connect.

3. The Economic Chain

The transition from fund economics to individual economics can be represented as a sequence:

Fund Cash Flows → Fund Waterfall → Carry Generated → Carry Pool → Carry Plan → Carry Cap Table → Participant Allocation

Each stage performs a different function.

Fund cash flows provide the economic events on which the waterfall operates.

The fund waterfall applies the contractual allocation rules between investors and the GP or other carry recipient.

Carry generated is the resulting economic amount attributable to carried interest.

The carry pool identifies the participant-level economic population to which that carry belongs.

The carry plan establishes the rules governing participation in that pool.

The carry cap table identifies the participants and their relevant economic interests.

Participant allocation applies those interests to the relevant carry.

Even after this process, further rules may remain.

Vesting may determine how much of the allocation has been earned.

Leaver provisions may determine what happens when a participant leaves.

Escrow or holdbacks may delay payment.

Tax advances may affect cash already received.

Clawback may create an obligation to return amounts previously distributed.

The broader lifecycle can therefore become:

Carry Generated → Carry Allocated → Carry Vested → Carry Payable → Carry Paid → Potential Adjustment or Clawback

The important point is that these are not interchangeable concepts.

4. Carry Generated

Carry generated refers to carried interest produced by the underlying economic calculation.

For example, assume that after applying the relevant waterfall the GP is entitled to €20 million.

For the purposes of the participant carry plan:

Carry Generated = €20 million

That amount exists before considering how it is divided between individual participants.

The carry plan does not normally determine whether the fund has generated €20 million of carry.

That question belongs to the underlying waterfall.

The carry plan determines what happens to the €20 million after it has been generated.

This separation provides a useful control boundary:

Waterfall Calculation → Carry Output

then:

Carry Output → Participant Allocation

If the participant allocations total €20 million but the underlying waterfall should only have generated €18 million, the participant calculations are still wrong.

Likewise, if the waterfall correctly generates €20 million but participant allocations total €19.5 million without a defined reason, there is a problem in the participant layer.

5. The Carry Pool

Carry generated by the fund must next be associated with the relevant carry pool.

In the simplest structure there may be only one.

Suppose:

Fund Carry = €20 million

and all of that carry belongs to a single participant pool.

Then:

Relevant Carry Pool = €20 million

Participant percentages can subsequently be applied to that pool.

But this simple structure should not be assumed.

A GP may maintain different participant economics for different investments, strategies, vintages or other populations.

Suppose the same €20 million consists of:

If the participant ownership is identical across all three investments, aggregation may be straightforward.

But assume instead:

There is no single participant percentage that can correctly be applied to the €20 million.

Partner A receives:

€8m × 50% + €7m × 20% + €5m × 30%

= €4.0m + €1.4m + €1.5m

= €6.9 million

Partner B receives:

€8m × 30% + €7m × 50% + €5m × 20%

= €2.4m + €3.5m + €1.0m

= €6.9 million

Principal A receives:

€8m × 20% + €7m × 30% + €5m × 50%

= €1.6m + €2.1m + €2.5m

= €6.2 million

The participant allocations reconcile:

€6.9m + €6.9m + €6.2m = €20.0m

This demonstrates why the economic population matters.

Before asking who owns the carry, it is necessary to ask:

Which carry?

6. One Fund Does Not Necessarily Mean One Carry Pool

A legal fund is not necessarily the correct economic population for participant allocation.

There may be separate carry pools by:

• investment;
• strategy;
• fund vintage;
• geography;
• team;
• asset class;
• parallel arrangement;
• or another defined population.

Therefore:

One Fund ≠ Necessarily One Carry Pool

This resembles a recurring principle encountered in the fund waterfall itself: legal structure and economic population are not necessarily the same thing.

A single legal vehicle can contain several relevant economic populations.

Conversely, an economic carry pool could potentially receive economics arising from more than one legal vehicle where the governing arrangements provide for that result.

The participant calculation must follow the actual carry-plan economics rather than assuming that the legal fund boundary automatically determines the participant pool.

7. One Participant Does Not Necessarily Mean One Carry Interest

The same principle applies from the opposite direction.

An individual may participate in several carry pools simultaneously.

Consider Partner A:

Asking:

“What is Partner A's carry percentage?”

therefore has no single answer.

The correct response is:

In which carry pool?

This leads to another fundamental principle:

One Participant ≠ Necessarily One Carry Interest

A participant's economic position is a collection of interests rather than necessarily one percentage.

At a minimum, the economic identity of an interest therefore requires:

Participant + Carry Pool

As soon as ownership can change through time, another dimension becomes necessary:

Participant + Carry Pool + Effective Period

This will become central later in the chapter.

8. The Carry Plan

Once the relevant carry pool has been identified, the carry plan determines the rules governing participation in it.

The plan may specify:

• which individuals or entities are eligible;
• how interests are measured;
• how interests are granted;
• when participation begins;
• whether historical value is included;
• how new participants enter;
• whether existing participants can be diluted;
• how interests can be transferred;
• how unallocated interests are treated;
• how different carry pools interact;
• and how the resulting economics are allocated.

The carry plan is therefore a rule set.

A useful shorthand is:

Carry Plan = Rules

This should be distinguished from the cap table.

9. The Carry Cap Table

The carry cap table records the participant interests created under the carry plan.

At its simplest:

The cap table tells us who participates and in what proportion.

Therefore:

Carry Cap Table = Participants + Interests

But this is only a starting definition.

A complete cap table may also need to identify:

• the relevant carry pool;
• fund or vintage;
• interest class;
• grant date;
• effective date;
• number of points or units;
• issued interests;
• reserved interests;
• current ownership;
• historical ownership;
• and the legal vehicle through which the interest is held.

The cap table therefore becomes the connection between the rules of the carry plan and the economic allocation to individual participants.

10. Carry Plan Versus Carry Cap Table

The distinction can be illustrated simply.

Suppose the carry plan provides that:

• there are 100 carry points;
• 10 points are reserved for future hires;
• existing points may be transferred with approval;
• future grants from the reserved pool do not dilute issued points;
• and participants receive carry in proportion to their points in the relevant pool.

Those are rules.

The cap table might then show:

Those are positions under the rules.

If Principal B subsequently receives five points from the reserved pool, the carry plan has not necessarily changed.

The cap table has.

The distinction is:

Change in Cap Table ≠ Necessarily Change in Carry Plan

Conversely, the carry plan could be amended while the current participant percentages initially remain unchanged.

Therefore:

Change in Carry Plan ≠ Necessarily Immediate Change in Cap Table

This separation is important for data, governance and controls.

11. Participant Allocation

Once carry has been generated, the relevant pool identified and the participant interests determined, the simplest participant allocation becomes:

Participant Carry = Relevant Carry Pool × Participant Economic Interest

Suppose:

Relevant carry pool = €20 million

Partner A = 30%

Partner B = 25%

Partner C = 20%

Principal A = 10%

Reserved pool = 15%

Then:

Mathematically, this is trivial.

Economically, however, an immediate question arises.

What does it mean for €3 million to be allocated to a reserved pool?

Is it genuinely allocated?

Does it remain economically with the existing partners until granted?

Does it accumulate for future participants?

Does it revert somewhere else?

Does the reserve dilute existing participants from inception, or only when interests are granted?

The arithmetic cannot answer those questions.

The carry plan must.

This is another example of a recurring theme throughout this Bible:

Calculation Accuracy ≠ Economic Correctness

12. Allocated Carry

Once carry has been assigned to a participant under the relevant carry plan and cap table, it can be described as allocated carry.

Suppose the fund has generated €20 million and Partner A has been allocated €6 million.

Then:

Fund Carry Generated = €20 million

Partner A Carry Allocated = €6 million

Those amounts answer different questions.

The first belongs to the fund-level economics.

The second belongs to the participant-level economics.

It is important that systems and reports distinguish them.

Otherwise, the word carry can begin to describe several different balances without making clear which economic layer is being discussed.

13. Realised Participant Carry

The distinction between realised and unrealised carry established at fund level can also flow through to participants.

Suppose the relevant fund-level carry consists of:

Realised carry: €8 million

Unrealised carry: €12 million

Total carry: €20 million

If Partner A participates at 30% throughout the relevant pool, then:

Realised Participant Carry = €8m × 30% = €2.4m

Unrealised Participant Carry = €12m × 30% = €3.6m

Therefore:

Total Participant Carry = €2.4m + €3.6m = €6.0m

or equivalently:

€20m × 30% = €6.0m

In this simple case:

Participant Unrealised Carry = Participant Total Carry − Participant Realised Carry

This mirrors the fund-level relationship developed in Chapter 4.

But this equivalence depends on the participant having the same relevant economic interest across the amounts being compared.

If participant ownership changes through time, or if realised and unrealised carry arise from different carry pools, the calculation can become more complicated.

14. Unrealised Participant Carry

Unrealised participant carry is particularly important because participants may naturally focus on the apparent current value of their carry interests.

Suppose a participant owns 10% of a carry pool with current total carry of €30 million, of which €5 million has already been realised.

A simple calculation gives:

Total Participant Carry = €30m × 10% = €3.0m

Realised Participant Carry = €5m × 10% = €0.5m

Unrealised Participant Carry = €3.0m − €0.5m = €2.5m

But the €2.5 million is not equivalent to cash.

It depends upon the underlying unrealised fund economics.

Portfolio values can fall.

Remaining commitments may affect the underlying carry calculation.

Further expenses may arise.

The fund waterfall may move backwards.

Previously accrued carry may disappear.

Therefore:

Unrealised Participant Carry ≠ Cash Entitlement

and:

Unrealised Participant Carry ≠ Guaranteed Future Carry

The participant cap table allocates an economic position. It does not remove the underlying investment risk.

15. Total Participant Carry

Total participant carry represents the participant's share of the relevant total carry position under the applicable carry plan and cap table.

Conceptually:

Participant Total Carry = Participant Realised Carry + Participant Unrealised Carry

where the same economic definitions and populations apply.

This can be useful for participant reporting because it gives a broader picture than distributions alone.

A participant may have received relatively little cash while holding a substantial unrealised carry position.

Conversely, a participant may already have received significant realised carry while the remaining unrealised position has subsequently deteriorated.

The economic picture therefore requires more than a single balance.

16. Carry Allocation Is Not the Same as Vesting

A participant may be allocated carry without having fully earned the right to retain it.

Suppose Partner A has an allocated carry position of €6 million.

If only 60% of the relevant interest has vested, it might be tempting to state:

Vested Carry = €6m × 60% = €3.6m

That may or may not be the correct result depending on the vesting architecture.

The important point at this stage is simply that allocation and vesting are separate concepts.

Chapter 6 asks:

What economic interest has been allocated to the participant?

Chapter 7 asks:

How much of that interest has been earned and what happens if the participant leaves?

Therefore:

Carry Allocation ≠ Vested Carry

This boundary is important because mixing cap-table ownership and vesting too early can make both considerably harder to understand.

17. Carry Allocation Is Not the Same as Payment

Even vested carry need not equal cash received.

Suppose a participant has:

Allocated carry: €6.0m

Vested carry: €5.0m

Realised vested carry: €2.0m

Of the €2 million realised amount:

• €0.4 million has been retained in escrow;
• €0.3 million has previously been advanced for taxes;
• €1.3 million is currently distributed in cash.

The participant may therefore simultaneously have several economically valid balances.

This produces another important chain:

Economic Allocation → Vesting → Realisation → Payability → Cash Movement

Each stage answers a different question.

The fact that money has or has not moved does not, by itself, establish the underlying economic entitlement.

As elsewhere in this Bible:

Cash Movement ≠ Economic Classification

18. Carry Paid

Carry paid is simply the cash or other value actually transferred to the participant in respect of the relevant carry economics.

It is a historical cash-flow fact.

It should not automatically be treated as the participant's final carry entitlement.

Fund performance can change.

The waterfall can change.

Clawback may arise.

Participant-level recovery provisions may apply.

Therefore:

Carry Paid ≠ Carry Ultimately Earned

This distinction is particularly important in deal-by-deal and other structures in which carry may be distributed before the final economic outcome of the fund is known.

19. Participant Carry and Clawback

Suppose a fund distributes €20 million of carry.

Partner A receives 30%:

€20m × 30% = €6m

Several years later, the final fund waterfall determines that total carry should have been only €15 million.

At fund level:

Potential Fund-Level Clawback = €20m − €15m = €5m

That does not automatically tell us how much Partner A must return.

If the participant allocation had remained unchanged throughout, a simple allocation might suggest:

€5m × 30% = €1.5m

But real arrangements may be more complicated.

The participant population may have changed.

Some participants may have left.

Some interests may have been transferred.

Tax adjustments may apply.

Escrow may already cover part of the obligation.

Different legal entities may be responsible for repayment.

This produces an important distinction:

Fund-Level Clawback ≠ Automatically Participant-Level Clawback

The participant cap-table history may therefore become essential to reconstructing responsibility for historical distributions.

20. Current Ownership Is Not Historical Ownership

Suppose Partner A owned 30% when €20 million of carry was distributed.

Partner A subsequently leaves.

The 30% interest is reallocated to Partner B.

Several years later, a €5 million fund-level clawback arises.

The current cap table might show:

Partner A: 0%

Partner B: 55%

That does not mean Partner B necessarily bears the historical obligation associated with carry previously paid to Partner A.

The relevant historical question may instead be:

Who received the carry when it was distributed?

This demonstrates why a current cap-table snapshot is insufficient.

Current Carry Ownership ≠ Historical Carry Ownership

and:

Current Carry Ownership ≠ Necessarily Historical Clawback Responsibility

The carry system must preserve history.

21. Economic Ownership Through Time

Consider a participant whose carry interest changes as follows:

What percentage should be applied to carry calculated in Year 5?

15%?

Perhaps.

But what if part of the carry relates to value created in Years 1 and 2?

What if the Year 3 increase was expressly prospective?

What if the participant received an additional interest including historical economics?

What if carry is allocated only when realised?

What if each investment has its own participant pool?

The answer depends upon the carry-plan rules.

This introduces one of the most important questions in participant-level carry:

What does the participant's percentage apply to, and from when?

The current percentage alone cannot answer it.

22. Grant Date, Effective Date and Economic Participation Date

Several dates may be relevant to a carry interest.

A grant may be approved on one date.

The legal documentation may be signed later.

The interest may be effective from an earlier or later date.

Economic participation may begin from another defined point.

For example:

Grant approved: 1 July

Agreement signed: 15 July

Effective date: 1 January

Participation in future investments only: from 1 July

These dates describe different facts.

Therefore:

Grant Date ≠ Necessarily Effective Date

and:

Effective Date ≠ Necessarily Economic Participation Date

This becomes particularly important for new joiners and retrospective grants.

The economic rules must determine which historical and future carry amounts belong to the participant.

23. Existing Value When a Participant Joins

Suppose a carry pool already has €40 million of estimated value.

A new partner is granted 10%.

A simple current cap table now shows:

New Partner: 10%

Does that mean the new partner has immediately received an economic interest worth €4 million?

Possibly.

But that may not be the intended result.

The plan might instead intend the participant to benefit only from value created after joining.

This issue has historically been recognised in carry-plan design: allocating existing interests to new employees can transfer value that was generated before they entered the plan, requiring the plan to determine whether and how that historical value should be preserved for existing participants. IMG_8216.HEIC

The economic question is:

Historical Value → Existing Participants?

or:

Historical Value → New Ownership Percentage?

Different carry plans can answer this differently.

Therefore:

Grant of Carry Interest ≠ Necessarily Grant of Historical Carry Value

This topic will be developed substantially in Part VII.

24. Reserved and Unallocated Carry

Many carry plans do not allocate 100% of the available interests immediately.

A portion may be retained for:

• future hires;
• promotions;
• retention awards;
• future partners;
• strategic recruits;
• or other future allocations.

This is often described as a reserved or unallocated pool.

But the economic treatment of that pool needs to be understood.

Suppose:

Existing participants: 80%

Reserved pool: 20%

If the carry pool generates €10 million, what happens to the €2 million notionally associated with the reserved 20%?

Several structures are possible.

It might remain economically unallocated.

It might accrue for future participants.

It might temporarily belong to existing participants.

The reserve might represent immediate dilution from inception.

Or dilution might occur only when points are actually granted.

These structures are not economically equivalent.

Therefore:

Reserved Percentage ≠ Automatically Allocated Carry

The rules of the carry plan determine the economic result.

25. Carry Generated Versus Carry Available for Allocation

Another useful distinction is between carry generated by the underlying waterfall and carry actually available to the participant plan.

Suppose:

Fund carry generated: €20m

But assume:

• €2m belongs to the sponsor outside the employee plan;
• €1m belongs to another strategic participant;
• €17m belongs to the employee carry pool.

Then:

Fund Carry Generated = €20m

while:

Employee Carry Pool = €17m

If Partner A owns 30% of the employee pool:

Partner A Carry = €17m × 30% = €5.1m

not:

€20m × 30% = €6.0m

The economic perimeter must therefore be defined before the participant percentage is applied.

This repeats a principle already encountered in the fund waterfall:

Correct Percentage + Wrong Economic Perimeter = Wrong Carry

26. Gross Carry and Participant Carry

A similar problem arises when people refer casually to a participant having, for example, “2% carry.”

That statement is incomplete.

Does the person have:

• 2% of the fund's total carry?
• 2% of the employee pool?
• 2% of a particular investment pool?
• 2% after the sponsor's retained interest?
• 2 carry points out of a larger point structure?
• 2% before or after dilution?

Suppose:

Fund carry = €50m

Sponsor retained interest = 40%

Employee pool = 60%

Participant A owns 10% of the employee pool.

Then:

Employee Pool = €50m × 60% = €30m

and:

Participant A Carry = €30m × 10% = €3m

Participant A therefore receives:

6% of total fund carry

despite having what may internally be described as a “10% carry interest.”

This illustrates why percentages should always be associated with their economic denominator.

A percentage without its denominator is not a complete economic description.

27. The Denominator Problem

The denominator is one of the most important concepts in carry cap-table analysis.

Suppose three documents state:

• Partner A: 20%
• Partner B: 15%
• Partner C: 10%

These percentages cannot be interpreted without knowing what each percentage measures.

Partner A's 20% could be 20% of Fund II employee carry.

Partner B's 15% could be 15% of the total GP carry.

Partner C's 10% could be 10% of a deal-specific pool.

The numbers are not directly comparable.

Every participant interest therefore needs an economic denominator.

Conceptually:

Participant Interest = Participant Units / Relevant Pool Units

or:

Participant Economic Percentage = Participant Interest / Relevant Economic Pool

This seems elementary, but denominator errors can create significant participant-allocation errors.

28. Allocation Level and Calculation Level

Participant carry can potentially be calculated at several levels.

For example:

Fund Carry → Fund Participant Pool → Participants

or:

Investment Carry → Investment Participant Pool → Participants

or:

Strategy Carry → Strategy Participant Pool → Participants

These structures can coexist.

The correct calculation level is therefore determined by the carry-plan architecture.

This creates another parallel with the fund waterfall:

Ability to Aggregate Data ≠ Economic Validity of Aggregation

If participant percentages differ by investment, calculating total carry first and applying an average participant percentage may produce the wrong result.

The economic populations must be preserved.

29. Calculate Then Aggregate

Return to the earlier three-investment example.

Partner A has:

50% of Investment A carry

20% of Investment B carry

30% of Investment C carry

The correct calculation was:

€8m × 50% + €7m × 20% + €5m × 30% = €6.9m

Suppose someone instead calculates Partner A's simple average percentage:

(50% + 20% + 30%) / 3 = 33.33%

and applies that to total carry:

€20m × 33.33% ≈ €6.67m

The answer is wrong.

The problem is not arithmetic.

The problem is aggregation.

The relevant carry amounts are not equally weighted.

The correct weighted economic percentage is:

€6.9m / €20m = 34.5%

But even that 34.5% is an output of the underlying allocations, not necessarily a reusable ownership percentage.

If the relative carry generated by the investments changes, the effective aggregate percentage changes.

Therefore:

Calculate by Relevant Carry Pool → Then Aggregate

is not necessarily equivalent to:

Aggregate Carry → Then Calculate

or more concisely:

Calculate Then Aggregate ≠ Necessarily Aggregate Then Calculate

30. A Participant's Effective Carry Percentage

The previous example introduces the concept of an effective carry percentage.

Partner A owns:

• 50% of Investment A;
• 20% of Investment B;
• 30% of Investment C.

There is no contractual 34.5% overall interest.

Yet based on the current distribution of carry between those investments, Partner A receives 34.5% of total carry.

Therefore:

Effective Aggregate Carry Percentage = Participant Total Carry / Total Relevant Carry

In this example:

€6.9m / €20m = 34.5%

This can be useful for analysis and reporting.

But it should not be confused with a legal or contractual ownership percentage.

If Investment A later produces considerably more carry, Partner A's effective aggregate percentage may increase because Partner A owns 50% of that pool.

Therefore:

Effective Carry Percentage ≠ Contractual Carry Percentage

It is an economic result of the underlying pools.

31. Participant Carry as a Multi-Dimensional Position

We can now describe participant carry more accurately.

A participant's economic position may depend on:

• the participant;
• the fund;
• the vintage;
• the carry pool;
• the investment;
• the strategy;
• the interest class;
• the number of points or units;
• the effective period;
• the carry generated;
• the realised/unrealised status;
• and eventually vesting and leaver status.

Participant carry is therefore not necessarily a single balance.

It may be better understood as a collection of economic positions.

Conceptually:

Participant Carry Position = Σ Relevant Carry Pool × Relevant Participant Interest

subject to the applicable carry-plan rules.

This is why participant-level carry can become a substantial data and modelling problem even where each individual allocation calculation is mathematically simple.

32. Economic Allocation Versus Legal Ownership

The participant entitled economically to carry may not necessarily appear directly in the fund documentation.

For example:

Fund → GP → Carry Vehicle → Participant

The fund may distribute carry to the GP.

The GP may transfer or allocate it to a carry partnership.

The participant may own an interest in that partnership.

The participant-level economic allocation therefore exists behind the legal fund-level recipient.

This reinforces the distinction:

Fund-Level Legal Recipient ≠ Ultimate Economic Participant

The legal architecture is important, but it should not obscure the underlying economic chain.

Part IX will examine these structures in more detail.

33. Individual Carry Entitlement Is a Derived Result

The central lesson of Part I is that individual carry is not an independent calculation.

It is derived from a sequence of preceding economic results.

A participant cannot have €5 million of carry unless the relevant economic pool first has sufficient carry to allocate.

The hierarchy is therefore:

Fund Economics

↓

Waterfall Result

↓

Carry Generated

↓

Relevant Carry Pool

↓

Participant Economic Interest

↓

Participant Carry Allocation

↓

Vesting and Other Participant Rules

↓

Final Individual Entitlement

Each level depends on the level above it.

This is important for both calculation and reconciliation.

If an individual entitlement appears wrong, the error may not be in the participant calculation.

It could originate in:

• the underlying fund data;
• the waterfall;
• the classification of carry into pools;
• the cap table;
• the effective date;
• the participant percentage;
• or the participant-specific rules.

The calculation therefore needs to remain traceable through the complete chain.

34. Traceability

A participant carry balance should ideally be capable of being traced backwards.

For example:

Individual Carry Entitlement

↓

Participant Allocation

↓

Participant Interest

↓

Carry Cap Table

↓

Relevant Carry Pool

↓

Carry Generated

↓

Fund Waterfall

↓

Economic Events

↓

Source Data

↓

Governing Provisions

This provides the basis for a participant-level control framework.

A final number without that traceability may be mathematically plausible but difficult to verify.

The objective should therefore be:

Result → Explanation → Source

not merely:

Result

35. Reconciliation

Participant carry should reconcile to the economic pool from which it originates.

Suppose:

Carry pool = €20m

Participant allocations:

A = €6m

B = €5m

C = €4m

D = €2m

Reserved/unallocated = €3m

Then:

€6m + €5m + €4m + €2m + €3m = €20m

This is a basic but important control.

Conceptually:

Allocated Carry + Properly Classified Unallocated Carry = Relevant Carry Pool

But reconciliation alone does not prove correctness.

The wrong participant percentages could still add perfectly to 100%.

The wrong effective dates could still produce allocations that reconcile exactly to the pool.

A wrong pool could still be fully allocated.

Therefore:

Reconciliation = Necessary Control

but:

Reconciliation ≠ Proof of Economic Correctness

or, in a formulation that will recur later in this chapter:

100% Reconciliation ≠ Correct Cap Table

36. A Simple End-to-End Example

Consider a fund that has generated €30 million of total carry.

The GP's arrangements provide that:

• 20% of the carry is retained by the sponsor outside the employee plan;
• 80% belongs to the employee carry pool.

Therefore:

Sponsor Carry = €30m × 20% = €6m

Employee Carry Pool = €30m × 80% = €24m

The employee cap table is:

Participant allocations are therefore:

Partner A:

€24m × 35% = €8.4m

Partner B:

€24m × 25% = €6.0m

Partner C:

€24m × 15% = €3.6m

Principal A:

€24m × 10% = €2.4m

Reserved:

€24m × 15% = €3.6m

Reconciliation:

€8.4m + €6.0m + €3.6m + €2.4m + €3.6m = €24m

and:

€24m Employee Pool + €6m Sponsor Carry = €30m Total Carry

The calculation is straightforward.

But we still do not know:

• whether the reserved €3.6 million belongs economically to future participants;
• whether all participants owned their percentages throughout the relevant period;
• whether historical carry is included in later grants;
• how realised and unrealised carry are treated;
• whether the interests are fully vested;
• how much has been distributed;
• or who bears future clawback.

Those questions require the remaining Parts of this chapter and Chapter 7.

37. The Boundary Between Chapter 6 and Chapter 7

Carry allocation and vesting are closely connected, but separating them conceptually makes both easier to understand.

Chapter 6 is principally concerned with:

Who has been allocated what economic interest?

Chapter 7 is principally concerned with:

How much of that allocated interest has been earned, and what happens when the participant leaves?

The transition can be represented as:

Carry Pool → Carry Plan → Cap Table → Participant Allocation

followed by:

Participant Allocation → Vesting → Leaver Treatment → Final Individual Entitlement

This means that Chapter 6 can establish that a participant has, for example, a 10% economic allocation in a particular carry pool without yet concluding that the participant is entitled to retain 100% of the resulting economics.

That conclusion requires the next layer of rules.

38. The Core Principles

Part I has established the basic architecture connecting fund-level carried interest to individual participant economics.

The principal concepts can be summarised as follows:

Fund Carry ≠ Individual Carry

Carry Plan = Rules

Carry Cap Table = Participants + Interests

Participant + Carry Pool + Effective Period = Economic Interest

One Fund ≠ Necessarily One Carry Pool

One Participant ≠ Necessarily One Carry Interest

Carry Generated ≠ Carry Allocated ≠ Carry Vested ≠ Carry Payable ≠ Carry Paid

Carry Points ≠ Carry Value

Carry Value ≠ Cash Payable

Economic Entitlement ≠ Cash Received

Carry Paid ≠ Carry Ultimately Earned

Current Carry Ownership ≠ Historical Carry Ownership

Current Carry Ownership ≠ Necessarily Historical Clawback Responsibility

Grant Date ≠ Necessarily Economic Participation Start Date

Grant of Carry Interest ≠ Necessarily Grant of Historical Carry Value

A Percentage Without Its Denominator Is Not a Complete Economic Description

Fund-Level Legal Recipient ≠ Ultimate Economic Participant

Calculate Then Aggregate ≠ Necessarily Aggregate Then Calculate

Effective Carry Percentage ≠ Contractual Carry Percentage

Correct Percentage + Wrong Economic Perimeter = Wrong Carry

Reconciliation ≠ Proof of Economic Correctness

Together, these principles lead to the central architecture of the chapter:

Fund Waterfall → Carry Generated → Relevant Carry Pool → Carry Plan → Carry Cap Table → Participant Allocation

The remaining Parts examine each component of that architecture in considerably greater detail.

Part II begins with the question that precedes all of them:

What is the carry plan actually designed to achieve?

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References and Further Reading

Core References

Stefanova, Mariya (ed.). The Definitive Guide to Carried Interest. Private Equity International, 2017.

Particularly relevant:

• Chapter 14 — Simon Havers, “Carried Interest as an Incentive Mechanism: Advantages and Disadvantages.”
• Chapter 15 — Tom Pittman and Robert Hagmeier, “Carried Interest Employee Incentive Structures.”
• Chapter 16 — Jennifer Choi, “How LPs View the Role of Carry in GP/LP Alignment.”

Chapter 15 is particularly relevant to the distinction between fund-level, vintage-year and deal-by-deal carry allocations; carry points; participant allocations; new hires; forfeitures; vesting; and carry-plan administration.

Carry Plans, Points and Participant Allocations

Pittman, Tom and Robert Hagmeier. “Carried Interest Employee Incentive Structures.” In Mariya Stefanova (ed.), The Definitive Guide to Carried Interest. Private Equity International, 2017, pp. 197–206.

Relevant subjects include:

• carry points;
• fund-level allocation;
• vintage-year allocation;
• deal-by-deal allocation;
• participant point allocations;
• changes in participant populations;
• new hires;
• forfeited points;
• treatment of value created before a participant joins;
• vesting;
• participant reporting;
• and carry-plan administration.

EWM Global. “Interview with Tom Pittman by Wells Fargo Prime Services Business Consulting.”

Relevant subjects include:

• allocation of carry points to investment professionals;
• fund-, vintage- and investment-level point pools;
• reserved points for future participants;
• dilution of existing participants;
• treatment of new joiners;
• vesting;
• forfeiture and reallocation;
• unrealised carry;
• participant reporting;
• and the importance of transparency in carry plans.

EWM Global. “Carried Interest & Co-Investment.”

Relevant subjects include:

• carry-point allocation;
• fund-level point pools;
• investment-level point pools;
• vintage-year point pools;
• reallocations;
• forfeitures;
• individual grants;
• vesting calendars;
• and participant-level allocation of carry events.

Carry as an Incentive Mechanism

Havers, Simon. “Carried Interest as an Incentive Mechanism: Advantages and Disadvantages.” In Mariya Stefanova (ed.), The Definitive Guide to Carried Interest. Private Equity International, 2017, pp. 187–195.

Relevant subjects include:

• carried interest as an incentive;
• attraction and retention of investment professionals;
• allocation of carry between individuals;
• performance attribution;
• seniority and contribution;
• participant perceptions of fairness;
• deal-specific versus broader allocations;
• and behavioural consequences of carry-plan design.

Carry Pools and Reserved Interests

SVB Capital. Carried Interest Long Term Incentive Plan.

Relevant provisions include:

• allocation of sponsor carried interest to an employee plan;
• allocation of carried-interest shares among participants;
• maintenance of a reserve account;
• use of reserved interests for existing or new participants;
• return of forfeited interests to the reserve;
• subsequent grants;
• and fund-specific participant interests.

Hamilton Lane Advisors, L.L.C. 2016 Carried Interest Plan, as amended.

Relevant provisions include:

• separate employee carry pools;
• 100-point carry pools;
• each point representing a percentage of the relevant pool;
• annual participant awards;
• identification of the applicable employee carry-pool year;
• reallocation of forfeited carry;
• vesting of participant awards;
• and maintenance of carried-interest records in a dedicated ledger.

Participant Carry, Vesting and Leaver Treatment

Torys LLP. Kline, Danielle and Jennifer Lennon. “Getting Vesting Right: Aligning Incentives Around Carried Interest in Private Equity.” 2025.

Relevant subjects include:

• distinction between carry allocation and vesting;
• time-based and deal-based vesting;
• participant retention;
• good-leaver and bad-leaver treatment;
• forfeiture;
• recycling and reallocation of forfeited carry;
• and alignment of participant economics with the lifecycle of the fund.

Detailed vesting and leaver mechanics are considered in Chapter 7 rather than Part I of this chapter.

Carry Administration and Historical Records

EWM Global. Hagmeier, Robert. “Carried Interest: Unlock the Full Potential of Your Data.”

Relevant subjects include:

• participant-level carry records;
• spreadsheet-based carry administration;
• changes in allocations over time;
• auditability;
• valuation and payment information;
• and the operational problems created as simple carry structures develop into more complex historical records.

EWM Global. “How About Some Love for the GP?”

Relevant subjects include:

• administration of GP carried-interest arrangements;
• employee incentive plans;
• participant reporting;
• spreadsheet dependency;
• and technology supporting GP-side carry administration.

Public Examples of Participant Carry Structures

Goldman Sachs Group, Inc. 2026 Proxy Statement — Carried Interest Program.

Relevant subjects include:

• carry pools;
• allocation of carry points;
• participant distributions based on carry points;
• vesting;
• forfeiture;
• clawback and recapture;
• and the distinction between carry points and subsequent cash distributions.

Hamilton Lane Advisors, L.L.C. 2016 Carried Interest Plan, as amended.

This provides a useful public example of a formal carry plan in which separate employee carry pools contain defined numbers of points and participant awards identify both the relevant pool and the number of points awarded.

Practitioner Framework Used in This Part

The following distinctions are used throughout The Carried Interest Bible as an analytical framework for participant-level carry:

Fund Carry ≠ Individual Carry

Carry Plan = Rules

Carry Cap Table = Participants + Interests

Participant + Carry Pool + Effective Period = Economic Interest

Carry Generated ≠ Carry Allocated ≠ Carry Vested ≠ Carry Payable ≠ Carry Paid

One Fund ≠ Necessarily One Carry Pool

One Participant ≠ Necessarily One Carry Interest

Current Carry Ownership ≠ Historical Carry Ownership

A Percentage Without Its Denominator Is Not a Complete Economic Description

Correct Percentage + Wrong Economic Perimeter = Wrong Carry

Calculate Then Aggregate ≠ Necessarily Aggregate Then Calculate

100% Reconciliation ≠ Correct Cap Table

These formulations are practitioner methodology used in this Bible to separate the different economic layers of participant-level carried interest.

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