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

First published: 24th of September 2026

Latest update: 5th of October 2026

Status: First Draft

1. From Allocation Architecture to Economic Ownership

Part III established the architecture through which carried interest is divided into economic populations.

Those populations may exist at:

• fund level;
• vintage level;
• investment level;
• strategy level;
• geography level;
• team level;
• or several levels simultaneously.

The next question is:

What does a participant actually own within those populations?

The answer may appear simple.

A participant may be described as having:

• 10% carry;
• 10 carry points;
• 100 carry units;
• a partnership interest;
• a class of shares;
• or another contractual economic interest.

But these descriptions are not automatically equivalent.

Each must ultimately be translated into an economic entitlement.

The analytical sequence is therefore:

Carry Source → Carry Pool → Participant Interest → Economic Percentage → Participant Allocation

The purpose of Part IV is to define the interests that sit between the carry pool and the participant allocation.

2. The Carry Pool

A carry pool is a defined economic population of carried interest available for allocation according to a particular set of participant ownership rules.

The definition has two components:

1. Which carry belongs to the pool?
2. Who participates in that pool and according to what interests?

Both are necessary.

A list of participants without a defined economic population is incomplete.

Likewise, a defined carry amount without participant ownership rules is not yet a participant carry plan.

Conceptually:

Defined Carry Economics + Defined Participant Ownership = Carry Pool

3. Carry Pool Versus Fund Carry

A carry pool should not automatically be equated with all carry generated by a fund.

Suppose Fund I generates €40 million of carry.

The GP arrangements provide:

Sponsor retained economics: 25%

Employee carry pool: 60%

Strategic participant pool: 10%

Reserved pool: 5%

Then:

The employee carry pool is therefore €24 million, not €40 million.

If Participant A owns 10% of the employee carry pool:

Participant A Carry = €24m × 10% = €2.4m

Participant A's effective share of total fund carry is:

€2.4m / €40m = 6%

Therefore:

Percentage of Carry Pool ≠ Necessarily Percentage of Total Fund Carry

4. The Economic Denominator

Every participant interest requires a denominator.

Suppose a document states:

Partner A: 10%

The statement is economically incomplete.

It might mean:

• 10% of total GP carry;
• 10% of the employee carry pool;
• 10% of Fund III employee carry;
• 10% of Investment A carry;
• 10% of a strategy pool;
• or 10% of another defined economic population.

The complete economic statement is therefore not:

Participant = 10%

but:

Participant = 10% of Defined Carry Pool

This leads to a fundamental principle:

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

5. Carry Points

Many carry plans express participant interests using carry points.

Suppose a carry pool contains 100 points.

Participant A receives 20 points.

Participant B receives 15 points.

Participant C receives 10 points.

The remaining 55 points belong to other participants or remain reserved.

If all points have identical economic rights:

Participant Economic Percentage = Participant Points / Total Relevant Points

For Participant A:

20 / 100 = 20%

The points therefore provide a convenient unit for expressing ownership.

6. Points Are a Measurement Convention

A carry point does not have an inherent economic value.

Its meaning depends on:

• the carry pool;
• the total number of relevant points;
• the rights attached to the point;
• the carry generated by the pool;
• the participant's effective period;
• and any other applicable plan rules.

Therefore:

Carry Point ≠ Fixed Monetary Value

If a participant owns 10 points out of 100, those points could currently represent:

€0 if the carry pool has no value;

€1 million if the carry pool is worth €10 million;

€5 million if the carry pool is worth €50 million.

The points have not changed.

The value of the underlying economics has.

7. Carry Points Versus Carry Value

Suppose:

Total points: 100

Participant A points: 10

Current carry pool: €20m

Then:

Participant A Economic Percentage = 10 / 100 = 10%

and:

Participant A Indicative Carry Value = €20m × 10% = €2m

If the carry pool subsequently increases to €30 million:

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

The participant still owns 10 points.

Therefore:

Carry Points ≠ Carry Value

Points describe participation.

Value depends on the underlying carry economics.

8. Why Use Points?

Points can make carry plans easier to administer.

Instead of repeatedly describing participants as owning fractions of an economic pool, the plan can create a defined number of units.

For example:

100 Carry Points = 100% of Relevant Carry Pool

This allows grants to be described simply:

Partner A: 25 points

Partner B: 20 points

Partner C: 15 points

Points can also make reserved capacity intuitive.

For example:

Issued points: 80

Reserved points: 20

Total authorised economic population: 100

But the apparent simplicity should not obscure the underlying economics.

The relevant questions remain:

What pool do the points participate in?

and:

What rights does each point carry?

9. Points Do Not Have to Total 100

A point system does not need to contain 100 points.

A plan could contain:

100 points;

1,000 points;

10,000 units;

1,000,000 units;

or another quantity.

Suppose:

Total units = 10,000

Participant A = 1,500 units

Then:

1,500 / 10,000 = 15%

The number of units is a measurement convention.

What matters economically is the proportion of the relevant pool represented by those units.

Therefore:

Number of Units ≠ Economic Percentage

until the denominator is known.

10. Units

Some plans use the term units rather than points.

Economically, units can perform a similar function.

Suppose:

Total carry units: 1,000

Participant A: 250

Participant B: 200

Participant C: 150

Reserved: 400

If all units rank equally:

Participant A:

250 / 1,000 = 25%

Participant B:

200 / 1,000 = 20%

Participant C:

150 / 1,000 = 15%

Reserved:

400 / 1,000 = 40%

Whether the instrument is called a point or a unit does not determine its economic substance.

Name of Instrument ≠ Economic Function

11. Percentages

A carry plan may avoid points entirely and allocate participant interests directly as percentages.

For example:

This can be intuitive.

But percentages still require a clearly defined denominator.

The correct interpretation is:

30% of Defined Carry Pool

not simply:

30% Carry

12. Points and Percentages Are Not Different Economics by Themselves

If all interests have identical rights, the following structures can be economically identical:

Participant A:

20 points out of 100;

200 units out of 1,000;

2,000 units out of 10,000;

20%.

In each case:

Participant Economic Interest = 20%

Therefore:

Different Measurement Convention ≠ Different Economics

But this equivalence disappears if different points, units or classes have different rights.

13. Economic Interests

The most useful general term is therefore economic interest.

An economic interest describes the participant's entitlement to a defined portion of a defined carry pool under the applicable rules.

It may be represented legally or administratively through:

• points;
• units;
• percentages;
• partnership interests;
• shares;
• contractual rights;
• classes;
• or other instruments.

The analytical objective is to identify the underlying economics.

Therefore:

Legal or Administrative Instrument → Economic Interest → Carry Entitlement

14. Economic Ownership Versus Legal Ownership

A participant's economic ownership and legal ownership may not be identical.

Suppose:

Fund → GP → Carry Partnership → Participant

The fund may legally pay carry to the GP.

The GP may transfer the relevant economics to a carry partnership.

The participant may legally own an interest in that partnership.

The participant's economic interest ultimately relates to fund carry, even though the participant has no direct legal ownership of the fund's carry entitlement.

Therefore:

Legal Ownership Chain ≠ Economic Allocation Chain

Both need to reconcile, but they describe different things.

15. Direct and Indirect Interests

A participant may hold carry directly or indirectly.

Direct

Carry Pool → Participant

Indirect

Carry Pool → Carry Vehicle → Participant

There may even be several layers:

Carry Pool → Master Carry Vehicle → Local Carry Vehicle → Participant

The economic analysis should ultimately answer:

What proportion of the underlying carry pool belongs economically to the participant?

This may require looking through one or more legal entities.

16. Effective Economic Interest

Suppose a participant owns 25% of a carry vehicle.

That carry vehicle itself owns 40% of the relevant carry pool.

The participant's effective economic interest in the underlying pool is:

25% × 40% = 10%

Therefore:

Direct Legal Percentage ≠ Necessarily Effective Carry Percentage

The economic chain needs to be multiplied through the ownership structure.

17. Multi-Layer Ownership Example

Suppose:

Fund carry = €50m

Employee carry vehicle receives 60%:

€50m × 60% = €30m

Class A receives 70% of the employee vehicle economics:

€30m × 70% = €21m

Participant A owns 20% of Class A:

€21m × 20% = €4.2m

Participant A therefore receives:

€4.2m / €50m = 8.4%

of total fund carry.

The complete economic chain is:

€50m × 60% × 70% × 20% = €4.2m

or:

Participant Effective Fund Carry Percentage = 60% × 70% × 20% = 8.4%

This illustrates why a participant's immediate legal ownership percentage may not describe their ultimate economics.

18. Multiple Carry Classes

A carry pool may contain more than one class of interest.

For example:

Class A — senior partners

Class B — other investment professionals

Class C — operating professionals

Class R — reserved interests

The classes may have identical economic rights.

If so, the class distinction may primarily serve administrative or legal purposes.

But the classes could also have different economic rights.

For example:

Class A may participate in all carry;

Class B may participate only above a defined threshold;

Class C may participate only in selected investments.

In that case:

One Carry Vehicle ≠ One Economic Class

The rights attached to each class must be understood separately.

19. Different Classes Can Have Different Denominators

Suppose a carry structure provides:

Class A: 70% of employee carry

Class B: 20% of employee carry

Class C: 10% of employee carry

Within Class A:

Partner A owns 50%.

Partner A therefore owns:

70% × 50% = 35%

of the employee carry pool.

If the employee pool is itself 60% of total fund carry:

60% × 35% = 21%

of total fund carry.

The participant's economic position therefore depends on several denominators.

The correct analysis follows the chain.

20. Nominal Percentage Versus Effective Percentage

This leads to a useful distinction.

A participant may have a nominal percentage within the immediate instrument or class.

But the participant's effective percentage of the underlying carry pool may differ.

Suppose:

Participant owns 20% of Class B.

Class B receives 30% of the carry pool.

Then:

Nominal Class Percentage = 20%

but:

Effective Carry Pool Percentage = 20% × 30% = 6%

Therefore:

Nominal Percentage ≠ Effective Economic Percentage

Participant reporting should make the distinction clear where multiple ownership layers exist.

21. Issued Interests

A carry plan may distinguish between interests that have actually been granted and interests available for future grants.

Interests already granted are commonly described as issued or allocated interests.

Suppose:

Total plan capacity: 100 points

Issued points: 80

Reserved points: 20

The issued participant interests total 80 points.

But what percentage do those 80 points represent economically?

There are at least two possible answers:

80%

or:

100% of the currently issued economics.

The answer depends on how the reserve is treated.

This distinction is critical.

22. Reserved Interests

A reserved pool may be created to provide capacity for:

• future hires;
• promotions;
• retention awards;
• succession;
• specialist recruitment;
• or future discretionary allocations.

Suppose:

Issued points: 80

Reserved points: 20

If the reserve participates economically from inception, existing participants collectively own only 80% of the pool.

If the reserve does not participate until granted, existing participants may currently own 100% of the economics despite representing only 80% of authorised points.

These structures produce different outcomes.

Therefore:

Reserved Capacity ≠ Necessarily Current Economic Ownership

23. Issued Basis Versus Fully Diluted Basis

This introduces a distinction familiar from other forms of ownership:

Issued Basis

versus:

Fully Diluted Basis

Suppose:

Participant A: 40 points

Participant B: 30 points

Participant C: 10 points

Reserved: 20 points

Total authorised points: 100

Issued points:

40 + 30 + 10 = 80

On an issued basis:

Participant A:

40 / 80 = 50%

Participant B:

30 / 80 = 37.5%

Participant C:

10 / 80 = 12.5%

On a fully diluted basis:

Participant A:

40 / 100 = 40%

Participant B:

30 / 100 = 30%

Participant C:

10 / 100 = 10%

Reserve:

20 / 100 = 20%

Both tables are mathematically correct.

They answer different questions.

24. Which Percentage Is the Economic Percentage?

The answer depends on the carry-plan rules.

If reserved points participate economically before being granted, the fully diluted percentages may represent current economics.

If the reserve has no economic participation until granted, the issued percentages may represent current economics.

The carry plan must therefore distinguish:

Authorised Capacity

Issued Ownership

Current Economic Ownership

Fully Diluted Ownership

These concepts should not automatically be treated as interchangeable.

25. Fully Diluted Ownership

Fully diluted ownership is useful because it shows the potential ownership structure assuming the relevant reserved or authorised interests are included in the denominator.

This can help participants understand future dilution.

Suppose Partner A currently owns:

40 out of 80 issued points = 50%.

But there are 20 reserved points.

Fully diluted:

40 out of 100 = 40%.

Partner A can therefore understand that complete use of the reserve could reduce the participant's percentage from 50% to 40%, assuming no other changes.

Therefore:

Current Issued Percentage ≠ Fully Diluted Percentage

26. Dilution

Dilution occurs when the participant's economic percentage decreases because the relevant denominator increases or ownership is otherwise redistributed.

Suppose:

Partner A: 40 points

Partner B: 40 points

Total issued: 80 points

Each owns:

40 / 80 = 50%

Ten new points are issued to Partner C.

The new total is:

90 points.

Partner A:

40 / 90 = 44.44%

Partner B:

40 / 90 = 44.44%

Partner C:

10 / 90 = 11.11%

Partner A and Partner B still own 40 points.

Their point holdings have not changed.

Their economic percentages have.

Therefore:

Same Number of Points ≠ Same Economic Percentage

when the denominator changes.

27. Non-Dilutive Grants

Not every new grant needs to dilute all existing participants.

Suppose a plan already contains a 20-point reserve.

Initial fully diluted cap table:

Partner A: 40

Partner B: 30

Partner C: 10

Reserve: 20

Total: 100

Five reserved points are granted to Partner D.

New cap table:

Partner A: 40

Partner B: 30

Partner C: 10

Partner D: 5

Reserve: 15

Total: 100

The fully diluted percentages of A, B and C have not changed.

The grant has reduced the reserve.

Therefore:

New Grant ≠ Necessarily New Dilution

if the economic dilution was already embedded in the reserved pool.

This distinction becomes important when participants are told that future grants will be “non-dilutive.”

The relevant question is:

Non-dilutive relative to which denominator?

28. Pool Expansion

A different result occurs if new points are created outside the existing pool.

Suppose:

A: 40

B: 30

C: 10

Reserve: 20

Total: 100

Ten new points are created for D.

Total becomes:

The new percentages are:

A:

40 / 110 = 36.36%

B:

30 / 110 = 27.27%

C:

10 / 110 = 9.09%

Reserve:

20 / 110 = 18.18%

D:

10 / 110 = 9.09%

Everyone except D has been diluted.

Therefore:

Grant From Existing Reserve ≠ Expansion of Carry Pool

The two transactions may both be described as “granting ten points,” but their economic consequences differ materially.

29. Transfer Versus New Issue

Suppose Partner A transfers ten existing points to Partner D.

Before:

A: 40

B: 30

C: 30

After:

A: 30

B: 30

C: 30

D: 10

Total remains 100.

No new economic interest has been created.

Ownership has been transferred.

Compare this with issuing ten new points:

A: 40

B: 30

C: 30

D: 10

Total: 110.

These are completely different transactions.

Therefore:

Transfer of Existing Interest ≠ Issue of New Interest

The cap table must record the economic nature of the event, not merely the closing balances.

30. Reallocation

A reallocation may involve transferring economics between participants without changing the size of the carry pool.

For example:

Opening:

A: 40%

B: 30%

C: 20%

Reserve: 10%

A transfers 5% to C.

Closing:

A: 35%

B: 30%

C: 25%

Reserve: 10%

Total remains 100%.

The economic event is:

A → C: 5% Transfer

This is different from cancelling 5% of A's interest and separately granting 5% to C, even if the closing cap table appears identical.

The historical transaction may matter for:

• approvals;
• tax;
• vesting;
• legal ownership;
• effective dates;
• and audit trail.

Therefore:

Same Closing Cap Table ≠ Same Ownership History

31. Forfeited Interests

A participant may forfeit carry under the applicable plan.

Suppose Participant C forfeits ten points.

What happens to those points?

Possible treatments include:

• return to reserve;
• cancellation;
• reallocation to existing participants;
• reallocation to selected participants;
• retention by the sponsor;
• or another defined treatment.

These alternatives have different economic consequences.

Therefore:

Forfeiture ≠ Automatic Redistribution

The plan must specify the destination of forfeited economics.

Detailed forfeiture and leaver treatment is considered in Chapter 7.

32. Cancellation

If forfeited points are cancelled, the denominator may decrease.

Suppose:

A: 40

B: 30

C: 20

Reserve: 10

Total: 100

C's 20 points are cancelled.

New total:

If no other adjustment is made:

A:

40 / 80 = 50%

B:

30 / 80 = 37.5%

Reserve:

10 / 80 = 12.5%

The remaining interests have increased proportionately.

Therefore:

Cancellation Can Create Economic Accretion for Remaining Interests

Whether that is intended depends on the plan.

33. Return to Reserve

Alternatively, C's 20 points could return to the reserve.

Then:

A: 40

B: 30

Reserve: 30

Total remains 100.

A and B retain their fully diluted percentages.

The economic capacity represented by C's former interest remains available for future grants.

Therefore:

Cancellation ≠ Return to Reserve

Again, apparently similar leaver events can produce different cap-table economics.

34. Fixed Percentages

Some participant interests may be defined as fixed percentages.

For example:

Founder A is entitled to 20% of the relevant carry pool.

If the plan genuinely guarantees that percentage, future grants must be structured around it.

Suppose:

Founder A: fixed 20%

Other participants and reserve: 80%

A new participant grant must come from the remaining 80% unless the fixed entitlement itself can be amended.

This creates:

Fixed Interest → Protected Economic Percentage

But the word fixed should be used carefully.

An interest is only economically fixed if the governing arrangements actually protect it from dilution or reallocation.

35. Floating Percentages

Other interests may float depending on the number of outstanding points or units.

Suppose Participant A owns 100 units.

If total units are 1,000:

A = 10%

If total units increase to 1,250:

A = 8%

The participant's unit count remains fixed while the economic percentage floats.

Therefore:

Fixed Units ≠ Fixed Percentage

This distinction should be explicit in participant reporting.

36. Fixed Percentage Versus Fixed Units

Consider two participants.

Participant A is entitled to:

10% of the carry pool

Participant B owns:

100 carry units

These interests cannot be compared until the total unit population and the rights of Participant A are understood.

If new units are issued, B may dilute.

A may not.

The structure therefore contains different economic classes even if both participants appear to participate in the same carry pool.

37. Priority Interests

Not every carry interest needs to rank proportionately.

A participant or class could have a priority entitlement.

For example:

Class A receives the first €2 million of a participant carry pool.

Thereafter, remaining carry is divided:

A: 30%

B: 40%

C: 30%

If total carry pool is €10 million:

First:

Class A Priority = €2m

Remaining:

€10m − €2m = €8m

Then:

A additional:

€8m × 30% = €2.4m

B:

€8m × 40% = €3.2m

C:

€8m × 30% = €2.4m

Total A:

€2m + €2.4m = €4.4m

The participant cap table can no longer be understood through a single percentage column.

38. Tiered Participant Economics

Participant economics can also contain tiers.

For example:

First €10m of carry:

Senior Pool: 70%

Other Pool: 30%

Carry above €10m:

Senior Pool: 50%

Other Pool: 50%

If total carry is €20m:

First tier:

Senior:

€10m × 70% = €7m

Other:

€10m × 30% = €3m

Second tier:

Senior:

€10m × 50% = €5m

Other:

€10m × 50% = €5m

Total:

Senior = €12m

Other = €8m

Effective percentages:

Senior = 60%

Other = 40%

But neither class simply “owns 60%” contractually.

The 60% is the result of a tiered allocation.

Therefore:

Effective Percentage ≠ Necessarily Contractual Allocation Rule

39. Participant-Level Waterfalls

Once participant economics contain priorities, thresholds or tiers, the participant allocation itself begins to resemble a waterfall.

Conceptually:

Carry Pool → Participant Allocation Waterfall → Participant Entitlements

This should not be confused with the fund waterfall.

There may therefore be two separate waterfalls:

Fund Waterfall → Determines GP Carry

and:

Participant Waterfall → Allocates GP Carry Internally

The existence of one does not imply the other.

40. Carry Pools Can Have Different Economic Rules

Suppose Participant A owns interests in three pools:

Fund Pool: 10% proportional interest

Deal Pool: 20% proportional interest

Leadership Pool: tiered interest

The same participant therefore holds three different types of economic interest.

A single participant master record cannot describe those economics adequately.

The economic rights belong to the participant-pool relationship.

Therefore:

Participant Identity ≠ Participant Economic Interest

The interest exists at the intersection:

Participant × Carry Pool × Economic Terms

41. Classes Versus Pools

Carry classes and carry pools should also be distinguished.

A pool defines the underlying carry population.

A class defines a set of rights within that population.

For example:

Fund III Employee Carry Pool

may contain:

Class A

Class B

Class C

Therefore:

Carry Pool = What Economics Are Being Allocated

Carry Class = How a Category of Interest Participates in Those Economics

This distinction becomes important where several classes participate differently in the same pool.

42. One Class Across Multiple Pools

The reverse can also occur.

A standard “Partner Class” might exist across several fund pools.

For example:

Partner Class — Fund II

Partner Class — Fund III

Partner Class — Fund IV

The class label may be identical.

The economic interests are not.

Partner A could own:

20% of Partner Class in Fund II;

15% in Fund III;

10% in Fund IV.

Therefore:

Same Class Name ≠ Same Economic Interest

The pool remains part of the economic identity.

43. The Carry Interest Identifier

For robust administration, each economic interest should be capable of being identified uniquely.

A conceptual identifier might contain:

Participant

Plan

Carry Pool

Class

Instrument

Effective Period

For example:

Partner A / Plan 2028 / Fund III / Employee Pool / Class A / 150 Units / Effective 1 January 2029

This is much more informative than:

Partner A — 15% Carry

The latter may be useful conversationally.

The former is closer to what a system needs.

44. Economic Interests Through Time

A participant's interest may change.

Suppose:

1 January 2028: 100 units

1 January 2029: +50 units

1 July 2030: +25 units

1 January 2032: −50 units

A current cap table might show:

125 units.

But that number does not describe the historical ownership.

The economic record should preserve the transactions:

Opening Units + Grants + Transfers + Reallocations − Cancellations = Closing Units

This provides the foundation for historical reconstruction.

45. Snapshot Versus Ledger

A cap-table snapshot answers:

What does the participant own now?

An ownership ledger answers:

How did the participant arrive at that position?

Both are useful.

But the ledger is more fundamental.

Conceptually:

Historical Ownership Ledger → Cap Table at Any Date

A current spreadsheet that stores only the latest percentages cannot necessarily reproduce historical economics.

Therefore:

A current carry cap table is only a view of an underlying historical ownership ledger.

This principle will be developed further in Parts V, VI and VII.

46. Carry Interest Value

Once the economic interest is defined, an indicative value can be calculated.

Suppose:

Carry pool value = €25m

Participant economic interest = 12%

Then:

Indicative Participant Carry Value = €25m × 12% = €3m

But this calculation requires care.

The €25 million may include:

• realised carry;
• unrealised carry;
• carry already distributed;
• amounts subject to clawback;
• or other economic components.

The phrase carry value should therefore identify what is being valued.

47. Gross Participant Carry Value

A useful starting measure can be:

Gross Participant Carry Value = Relevant Carry Pool × Participant Economic Interest

Suppose:

Relevant carry pool: €25m

Participant interest: 12%

Then:

Gross Participant Carry Value = €3m

But €3 million does not necessarily equal:

• vested carry;
• payable carry;
• cash available for distribution;
• after-tax value;
• or final lifetime carry.

Therefore:

Gross Participant Carry Value ≠ Participant Cash Entitlement

48. Realised and Unrealised Interest Value

Suppose the €25 million carry pool consists of:

Realised carry: €10m

Unrealised carry: €15m

Participant interest: 12%

Then:

Participant Realised Carry = €10m × 12% = €1.2m

Participant Unrealised Carry = €15m × 12% = €1.8m

Total:

€1.2m + €1.8m = €3m

This provides a more informative economic breakdown.

However, the calculation assumes that the same participant interest applies to both populations.

If ownership changed through time, that assumption may be wrong.

49. Points Cannot Be Valued Without the Pool

Suppose Participant A owns ten points.

What are those points worth?

There is no answer until we know:

1. which pool;
2. how many relevant points exist;
3. what rights the points carry;
4. what the carry pool is worth;
5. which period the points participate in.

Therefore:

Points Alone Do Not Determine Value

The complete chain is:

Points → Percentage of Defined Pool → Relevant Carry Economics → Indicative Value

50. Comparing Carry Grants

This becomes important when comparing carry offers.

Suppose Firm A offers a participant:

20 points.

Firm B offers:

10 points.

Firm A's plan contains 1,000 points.

Firm B's plan contains 100 points.

Then:

Firm A:

20 / 1,000 = 2%

Firm B:

10 / 100 = 10%

But even that does not determine which offer is more valuable.

Suppose Firm A's relevant carry pool is expected to be €100 million.

Firm B's relevant pool is €10 million.

Indicative values:

Firm A:

€100m × 2% = €2m

Firm B:

€10m × 10% = €1m

The apparently smaller percentage can be more valuable.

Therefore:

More Points ≠ Greater Percentage

Greater Percentage ≠ Greater Carry Value

51. Carry Value Depends on Underlying Economics

Even the previous comparison is incomplete because current or expected pool value may not become final carry.

The economic value of an interest depends upon:

• fund performance;
• waterfall structure;
• current valuations;
• remaining investments;
• future funding;
• expenses;
• future realisations;
• vesting;
• leaver provisions;
• clawback;
• tax;
• and other factors.

Therefore:

Carry Interest Percentage × Current Carry Pool = Current Indicative Carry Position

not:

Guaranteed Participant Wealth

This distinction should remain explicit in participant communication.

52. Different Interests Can Have Different Risk

Two participants can have interests with the same current indicative value but different risk.

Participant A may have €2 million of realised carry.

Participant B may have €2 million of unrealised carry.

The headline value is identical.

The economic certainty is not.

Similarly:

Participant C may have vested carry.

Participant D may have unvested carry.

Again, the current calculated amount may be identical while the participant risk differs.

Therefore:

Same Indicative Value ≠ Same Economic Quality

A carry interest has characteristics beyond its current amount.

53. Carry Interests as Bundles of Rights

It is therefore useful to think of a carry interest as a bundle of economic rights rather than merely a percentage.

Those rights may determine:

• which carry pool participates;
• percentage or units;
• priority;
• effective date;
• vesting;
• transferability;
• forfeiture;
• distribution rights;
• clawback responsibility;
• and other conditions.

Conceptually:

Carry Interest = Economic Percentage + Economic Population + Rights + Conditions + Time

This is a more complete description than a single percentage.

54. Economic Rights Versus Governance Rights

A carry interest may also have governance rights.

For example, a legal partnership interest might carry:

• voting rights;
• information rights;
• consent rights;
• appointment rights;
• or other governance powers.

These should be distinguished from the economic entitlement.

A participant could have:

10% of economic rights;

but a different percentage of voting rights.

Therefore:

Economic Ownership ≠ Governance Ownership

This distinction becomes particularly important where carry vehicles use multiple classes.

55. Voting Rights Do Not Determine Carry

Suppose Founder A controls 60% of the voting rights in a carry vehicle but owns 20% of its economics.

Partner B owns 10% of voting rights but 30% of the economics.

The participant carry allocation should follow the economic rights, not the voting percentages.

Therefore:

Control Percentage ≠ Carry Percentage

unless the governing arrangements explicitly make them identical.

56. Capital Ownership Versus Carry Ownership

Participants may also invest capital alongside their carry interests.

Suppose Partner A owns:

10% of the carry pool;

5% of the GP capital account.

These are separate economic interests.

Return on invested capital should not automatically be classified as carry.

Therefore:

Capital Ownership ≠ Carry Ownership

and:

Return on Capital ≠ Carried Interest

This distinction becomes especially important where carry is capitalised into an investment account or where participants co-invest alongside the fund.

57. Multiple Economic Roles

A participant can therefore simultaneously be:

• an employee;
• a partner;
• a shareholder;
• a carry participant;
• a co-investor;
• a lender;
• and a director.

Each role can generate different economic rights.

The carry cap table should isolate the carry interest from those other relationships.

Otherwise, unrelated economics can become mixed.

Therefore:

Same Person ≠ Same Economic Capacity

58. Sponsor Carry Versus Employee Carry

A GP organisation may retain part of the carry for founders, the management company or another sponsor entity while allocating another portion to employees or partners.

For example:

Total GP carry: 100%

Sponsor: 30%

Employee pool: 70%

The employee cap table then allocates the 70%.

A participant with 20% of the employee pool receives:

70% × 20% = 14%

of total GP carry.

The distinction should remain visible:

Sponsor Carry ≠ Employee Carry Pool

Combining them prematurely can obscure the true denominator of participant interests.

59. Founder Carry

Founder economics may also be structured differently from employee carry.

A founder could hold:

• a permanent percentage of total GP carry;
• an interest in the employee pool;
• management-company ownership;
• direct GP ownership;
• or several of these simultaneously.

For example:

Founder A:

15% direct sponsor carry;

plus 20% of a 60% employee pool.

Employee-pool interest:

60% × 20% = 12%

Total effective fund carry:

15% + 12% = 27%

This demonstrates why participant economics sometimes need to be assembled from several interests.

60. Reserved Carry Versus Unallocated Carry

The terms reserved and unallocated should not automatically be treated as identical.

A reserved interest may be deliberately set aside for a defined future purpose.

An unallocated interest may simply not yet have been assigned.

For example:

Reserved for future hires: 10%

Unallocated discretionary balance: 5%

These populations could have different governance rules.

Therefore:

Reserved ≠ Necessarily Unallocated

and:

Unallocated ≠ Unowned

The plan must define the economic status of each.

61. Who Owns the Unallocated Economics?

This is an important question.

Suppose 90% of a carry pool has been allocated and 10% remains unallocated.

If the pool generates €10 million of carry, what happens to the remaining €1 million?

Possible answers include:

• retained by the sponsor;
• held for future participants;
• redistributed among issued participants;
• retained in the carry vehicle;
• allocated later;
• or treated according to another defined rule.

The cap table cannot answer this unless the plan defines the treatment.

Therefore:

Unallocated Percentage Requires Defined Economic Treatment

62. Economic Ownership Must Always Reconcile

Whatever terminology is used, the complete economic ownership of a carry pool should be capable of reconciliation.

For example:

This provides a complete economic population.

But as established previously:

100% Reconciliation ≠ Correct Economics

The percentages may still apply to the wrong pool, wrong period or wrong participants.

Reconciliation is necessary.

Interpretation remains essential.

63. Reconciliation Across Layers

Where several ownership layers exist, reconciliation should occur at every layer.

Suppose:

Fund carry = €50m

Layer 1:

Sponsor = 20%

Employee Vehicle = 70%

Strategic Pool = 10%

Total = 100%

Employee Vehicle Layer:

Class A = 60%

Class B = 30%

Reserve = 10%

Total = 100%

Class A Layer:

Partner A = 50%

Partner B = 30%

Partner C = 20%

Total = 100%

The structure should reconcile at each level.

This creates:

Source Reconciliation → Pool Reconciliation → Class Reconciliation → Participant Reconciliation

A break at any level indicates an incomplete economic population.

64. The Look-Through Cap Table

For complex structures, it can be useful to calculate a look-through economic percentage.

Using the previous example:

Employee Vehicle = 70% of total fund carry.

Class A = 60% of Employee Vehicle.

Partner A = 50% of Class A.

Therefore:

70% × 60% × 50% = 21%

Partner A has an effective 21% interest in total fund carry through this chain.

A look-through cap table can make layered economics easier to understand.

But it should supplement rather than replace the underlying ownership structure.

The layers remain relevant for legal ownership, governance, history and administration.

65. Look-Through Ownership Is a Derived Result

The 21% effective interest is derived from three separate ownership relationships.

If any layer changes, the effective percentage changes.

Therefore:

Look-Through Percentage = Derived Economic Result

not necessarily:

Direct Contractual Interest

The distinction is similar to the effective aggregate percentages discussed in Part III.

Derived percentages are useful analytical outputs.

They should not replace the underlying rules.

66. The Carry Interest as a Data Object

From a systems perspective, a carry interest can therefore be treated as a distinct data object.

It may contain:

• participant;
• carry plan;
• carry pool;
• class;
• instrument type;
• points or units;
• nominal percentage;
• effective percentage;
• issued date;
• effective date;
• status;
• legal holder;
• beneficial owner;
• source transaction;
• and governing documentation.

Additional attributes may later include:

• vesting;
• leaver status;
• distribution history;
• tax;
• clawback;
• and other participant-level information.

This demonstrates why a simple spreadsheet containing participant names and percentages can become inadequate as the carry architecture develops.

67. The Economic Identity of a Carry Interest

The minimum economic identity can be expressed as:

Participant + Carry Pool + Interest + Effective Period

Where necessary, this expands to:

Participant + Plan + Pool + Class + Instrument + Interest + Effective Period

The participant name alone is insufficient.

The percentage alone is insufficient.

The instrument alone is insufficient.

The economics exist only when these dimensions are connected.

68. A Worked Multi-Layer Example

Assume Fund IV generates €80 million of carry.

The GP economics are divided:

Sponsor: 25%

Employee Carry Vehicle: 65%

Strategic Pool: 10%

Therefore:

Sponsor:

€80m × 25% = €20m

Employee Carry Vehicle:

€80m × 65% = €52m

Strategic Pool:

€80m × 10% = €8m

The Employee Carry Vehicle is divided:

Class A: 70%

Class B: 20%

Reserve: 10%

Therefore:

Class A:

€52m × 70% = €36.4m

Class B:

€52m × 20% = €10.4m

Reserve:

€52m × 10% = €5.2m

Within Class A:

Partner A: 40%

Partner B: 30%

Partner C: 20%

Partner D: 10%

Partner A receives:

€36.4m × 40% = €14.56m

Partner B:

€36.4m × 30% = €10.92m

Partner C:

€36.4m × 20% = €7.28m

Partner D:

€36.4m × 10% = €3.64m

Partner A's effective share of total fund carry is:

€14.56m / €80m = 18.2%

The same result can be calculated directly:

65% × 70% × 40% = 18.2%

This example illustrates the full chain:

Fund Carry → Carry Vehicle → Class → Participant → Effective Economic Interest

69. Adding Points to the Example

Suppose Class A contains 1,000 points.

Partner A: 400

Partner B: 300

Partner C: 200

Partner D: 100

Then:

Partner A:

400 / 1,000 = 40%

The points are simply the mechanism through which the Class A ownership percentages are expressed.

The complete calculation becomes:

€80m × 65% × 70% × (400 / 1,000)

= €14.56m

This demonstrates the relationship:

Points → Class Percentage → Pool Percentage → Fund Carry → Participant Value

70. Adding a Reserve

Suppose Class A instead contains:

Partner A: 400

Partner B: 250

Partner C: 150

Partner D: 100

Reserve: 100

Total: 1,000

On a fully diluted basis:

A = 40%

B = 25%

C = 15%

D = 10%

Reserve = 10%

If the reserve participates economically from inception, the participant allocations use these percentages.

If the reserve does not participate until granted, the currently issued points total only 900.

Issued-basis percentages become:

A:

400 / 900 = 44.44%

B:

250 / 900 = 27.78%

C:

150 / 900 = 16.67%

D:

100 / 900 = 11.11%

The correct economic percentages therefore depend on the reserve rules.

This is why the cap table must record more than the number of points.

71. Three Different Meanings of “10% Carry”

Consider three participants.

Participant A

10% of total GP carry.

Participant B

10% of an employee pool representing 70% of GP carry.

Effective total carry:

10% × 70% = 7%

Participant C

10% of a class representing 50% of an employee pool that represents 70% of GP carry.

Effective total carry:

10% × 50% × 70% = 3.5%

All three could casually be described as having “10% carry.”

Their economics are materially different.

Therefore:

Carry Percentage Without Economic Context Is Potentially Misleading.

72. Carry Points Are Not Comparable Across Pools

The same problem applies to points.

Participant A:

10 points in a 100-point Fund I pool.

Participant B:

10 points in a 1,000-point Fund II pool.

Participant C:

10 points in a 50-point deal pool.

The economic percentages are:

A = 10%

B = 1%

C = 20%

Therefore:

10 Points ≠ 10 Points Economically

unless the denominator and underlying pool are the same.

Points should never be compared across pools without translating them into economic percentages and understanding the relevant carry population.

73. Carry Percentages Are Not Comparable Across Funds

Even identical percentages may have very different economic values.

Suppose:

Participant A: 10% of Fund I employee pool

Participant B: 10% of Fund II employee pool

Fund I employee carry value: €5m

Fund II employee carry value: €40m

Then:

A indicative value:

€5m × 10% = €0.5m

B indicative value:

€40m × 10% = €4m

Therefore:

Same Carry Percentage ≠ Same Carry Value

This is particularly important when comparing compensation between participants or organisations.

74. The Four Questions

Whenever a participant carry interest is encountered, four initial questions should be asked:

1. What is the economic population?

Which carry pool does the interest apply to?

2. What is the measurement convention?

Percentage, points, units, class interest or another instrument?

3. What is the denominator?

How is the participant's economic percentage determined?

4. From when does the interest apply?

Which historical and future economics are included?

These four questions resolve many apparent ambiguities.

75. From Economic Interests to the Carry Cap Table

Part IV has established what the cap table needs to represent.

It is not merely:

Participant + Percentage

A more complete structure is:

Participant + Carry Pool + Class + Points/Units + Economic Percentage + Effective Period

And where ownership is layered:

Participant Interest → Class Interest → Carry Pool Interest → Effective Underlying Carry Interest

The carry cap table must preserve these relationships.

It should allow the organisation to answer:

Who owns the economics?

Which economics do they own?

Through which interest?

In what proportion?

On what basis?

From when?

Part V therefore moves from the nature of the economic interests to the structure that records them:

How should a carry cap table be constructed so that participant ownership can be understood, calculated, reconciled and reconstructed?

76. Core Principles

The principal concepts developed in Part IV can be summarised as follows:

Defined Carry Economics + Defined Participant Ownership = Carry Pool

Percentage of Carry Pool ≠ Necessarily Percentage of Total Fund Carry

A Percentage Without Its Denominator Is Not a Complete Economic Interest

Carry Point ≠ Fixed Monetary Value

Carry Points ≠ Carry Value

Number of Units ≠ Economic Percentage

Name of Instrument ≠ Economic Function

Different Measurement Convention ≠ Different Economics

Legal or Administrative Instrument → Economic Interest → Carry Entitlement

Legal Ownership Chain ≠ Economic Allocation Chain

Direct Legal Percentage ≠ Necessarily Effective Carry Percentage

Nominal Percentage ≠ Effective Economic Percentage

Reserved Capacity ≠ Necessarily Current Economic Ownership

Current Issued Percentage ≠ Fully Diluted Percentage

Same Number of Points ≠ Same Economic Percentage

New Grant ≠ Necessarily New Dilution

Grant From Existing Reserve ≠ Expansion of Carry Pool

Transfer of Existing Interest ≠ Issue of New Interest

Same Closing Cap Table ≠ Same Ownership History

Forfeiture ≠ Automatic Redistribution

Cancellation ≠ Return to Reserve

Fixed Units ≠ Fixed Percentage

Effective Percentage ≠ Necessarily Contractual Allocation Rule

Carry Pool = What Economics Are Being Allocated

Carry Class = How a Category of Interest Participates in Those Economics

Participant Identity ≠ Participant Economic Interest

Participant × Carry Pool × Economic Terms = Economic Position

Economic Ownership ≠ Governance Ownership

Control Percentage ≠ Carry Percentage

Capital Ownership ≠ Carry Ownership

Return on Capital ≠ Carried Interest

Same Person ≠ Same Economic Capacity

Sponsor Carry ≠ Employee Carry Pool

Reserved ≠ Necessarily Unallocated

Unallocated ≠ Unowned

Unallocated Percentage Requires Defined Economic Treatment

100% Reconciliation ≠ Correct Economics

Historical Ownership Ledger → Cap Table at Any Date

A Current Carry Cap Table Is Only a View of an Underlying Historical Ownership Ledger

Gross Participant Carry Value ≠ Participant Cash Entitlement

Points Alone Do Not Determine Value

More Points ≠ Greater Percentage

Greater Percentage ≠ Greater Carry Value

Same Indicative Value ≠ Same Economic Quality

Carry Interest = Economic Percentage + Economic Population + Rights + Conditions + Time

Carry Percentage Without Economic Context Is Potentially Misleading

10 Points ≠ 10 Points Economically

Same Carry Percentage ≠ Same Carry Value

These principles provide the vocabulary required to construct the carry cap table itself.

Need assistance with your Carried Interest Challenges? Reach out to us:

[email protected]

Or ask your questions here:

References and Further Reading

Internal Ownership of Private Equity Economics

Ivashina, Victoria and Josh Lerner. “Pay Now or Pay Later? The Economics within the Private Equity Partnership.” Journal of Financial Economics, Vol. 131, No. 1, 2019, pp. 61–87. dash.harvard.edu

Relevant subjects include:

• allocation of fund economics among individual partners;
• carried-interest ownership;
• management-company ownership;
• differences between ownership and carried-interest participation;
• founder economics;
• senior versus junior partner economics;
• inequality in internal economic allocations;
• partner departures;
• succession;
• and organisational continuity.

Particularly relevant to:

Ownership of the Management Company ≠ Ownership of Carry

Same Person ≠ Same Economic Capacity

Participant Economic Interest ≠ Necessarily Management-Company Ownership

Private Equity Fund Compensation

Metrick, Andrew and Ayako Yasuda. “The Economics of Private Equity Funds.” Review of Financial Studies, Vol. 23, No. 6, 2010, pp. 2303–2341.

Relevant subjects include:

• management fees;
• carried interest;
• GP compensation;
• economic value of carry;
• differences between contractual percentages and economic value;
• fund size;
• fund performance;
• and the structure of private equity manager economics.

Particularly relevant to:

Carry Percentage ≠ Carry Value

Contractual Carry Rate ≠ Economic Value of the Carry Interest

Valuation of Carried Interest

Choi, Wonho Wilson, Andrew Metrick and Ayako Yasuda. “A Model of Private Equity Fund Compensation.” NBER Working Paper No. 17568, 2011. NBER

Relevant subjects include:

• economic valuation of carried interest;
• GP compensation;
• contractual profit-sharing arrangements;
• timing of carry;
• present value of carry;
• different carry structures;
• and the sensitivity of carry value to underlying fund economics.

Particularly relevant to:

Carry Interest Percentage × Underlying Economics → Carry Value

Same Carry Percentage ≠ Necessarily Same Economic Value

Current Carry Value ≠ Final Carry Value

Partnership Economics, Ownership and Retention

Ivashina, Victoria and Josh Lerner. “Pay Now or Pay Later? The Economics within the Private Equity Partnership.” Journal of Financial Economics, Vol. 131, No. 1, 2019, pp. 61–87. dash.harvard.edu

The study examines 717 private equity partnerships and documents substantial variation in the allocation of carried interest and ownership among individual partners. It also distinguishes between carried-interest participation and ownership of the private equity management organisation. NBER

Relevant subjects include:

• carried-interest allocation;
• ownership allocation;
• founder interests;
• internal economic inequality;
• retention;
• senior partner departures;
• and intergenerational economics.

Particularly relevant to:

Carry Ownership ≠ Firm Ownership

Economic Participation ≠ Governance or Corporate Ownership

Future Fund Economics

Chung, Ji-Woong, Berk A. Sensoy, Léa H. Stern and Michael S. Weisbach. “Pay for Performance from Future Fund Flows: The Case of Private Equity.” Review of Financial Studies, Vol. 25, No. 11, 2012, pp. 3259–3304.

Relevant subjects include:

• carried-interest incentives;
• current versus future fund economics;
• future fundraising;
• successive fund generations;
• GP lifetime economics;
• performance incentives;
• and the economic importance of participation across multiple funds.

Particularly relevant to:

Current Carry Ownership ≠ Expected Future Carry Opportunity

One Participant → Multiple Funds → Multiple Economic Interests

Venture Capital Partnership Compensation

Gompers, Paul A. and Josh Lerner. “An Analysis of Compensation in the U.S. Venture Capital Partnership.” Journal of Financial Economics, Vol. 51, No. 1, 1999, pp. 3–44.

Relevant subjects include:

• partnership compensation;
• carried interest;
• management fees;
• incentive compensation;
• fund economics;
• contractual compensation structures;
• and the relationship between compensation arrangements and organisational characteristics.

Relevant to the broader distinction between:

Management Economics

Fund Economics

Carried-Interest Economics

Participant Economics

Incentive Compensation and Ownership

Jensen, Michael C. and William H. Meckling. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, Vol. 3, No. 4, 1976, pp. 305–360.

Relevant subjects include:

• ownership incentives;
• agency relationships;
• alignment of economic interests;
• managerial ownership;
• incentive structures;
• and the relationship between ownership and behaviour.

Relevant to the broader conceptual foundation:

Economic Ownership → Economic Exposure → Incentives

Economic Organisation and Team Production

Alchian, Armen A. and Harold Demsetz. “Production, Information Costs, and Economic Organization.” American Economic Review, Vol. 62, No. 5, 1972, pp. 777–795.

Relevant subjects include:

• team production;
• allocation of economic rewards;
• monitoring;
• organisational incentives;
• ownership;
• and the relationship between contribution and economic participation.

Relevant to:

Individual Contribution ↔ Collective Economic Ownership

Economic Allocation → Organisational Incentives

Carry Allocation Architecture and Employee Interests

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

Relevant subjects include:

• carry points;
• participant allocations;
• fund-level interests;
• vintage-level interests;
• investment-level interests;
• new participants;
• forfeited interests;
• reallocations;
• vesting;
• participant reporting;
• and administration of carry interests.

Particularly relevant to:

Carry Points ≠ Carry Value

One Participant ≠ One Carry Interest

Participant + Carry Pool + Effective Period = Economic Interest

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.

Relevant subjects include:

• allocation of carry among individuals;
• carry as long-term compensation;
• individual versus collective incentives;
• performance attribution;
• retention;
• recognition;
• and participant behaviour.

The Carried Interest Bible © 2026 Table Bay Investments Ltd, All rights reserved.