Author: Gert-Tom Draisma / www.TristanFinance.com
First published: 24th of September 2026
Latest update: 25th of September 2026
Carried interest is simple in principle. It rarely is in practice.
Carried interest is one of the defining economic features of private markets. At its simplest, it is a mechanism through which the people responsible for managing an investment fund participate in the profits generated for investors.
The principle is straightforward.
The implementation often is not.
A carried interest arrangement begins with legal and commercial terms agreed between investors and fund managers. Those terms must then be translated into operational rules, data requirements, calculations, accounting entries, participant allocations and ultimately payments.
Between the language of the legal documents and the final carried interest calculation lies an extraordinary amount of detail.
A seemingly simple waterfall can depend on questions such as:
- Which contributions and distributions enter the calculation?
- When does a preferred return begin and stop accruing?
- Is the preferred return compounded?
- How are management fees and fund expenses treated?
- How are subsequent closings equalised?
- What happens when capital is recycled?
- How do subscription facilities affect the calculation?
- How are write-offs and partial realisations treated?
- When does a catch-up apply?
- How is carried interest allocated between individual participants?
- What happens when a participant joins, leaves or only partially vests?
- How should unrealised carried interest be calculated and reported?
- How can an LP, GP, administrator or auditor independently verify that the result is correct?
Each question may appear manageable in isolation. In a real fund, they interact.
That is where carried interest becomes difficult.
From legal language to numbers
The economic arrangement normally begins in the fund documentation.
But an LPA does not calculate carried interest.
Someone has to translate its provisions into a working methodology. Data has to be obtained from accounting systems, administrators and other sources. That data has to be interpreted and validated. Waterfall logic has to be modelled. Exceptions have to be dealt with. Results have to be reconciled, reviewed and explained.
The process can therefore be thought of as a chain:
LPA → interpretation → data → calculation → allocation → accounting → reporting → validation
An error or ambiguity at any point in that chain can affect everything that follows.
This is why carried interest is not merely a legal subject, an accounting subject or a mathematical subject. It sits at the intersection of all of them.
Why The Carried Interest Bible exists
There is a substantial body of knowledge about carried interest, but it is fragmented.
Legal practitioners understandably concentrate on fund documentation. Tax advisers concentrate on the treatment of carried interest in particular jurisdictions. Accountants focus on recognition and reporting. Technology providers focus on calculation systems. Fund administrators focus on operational processing. GPs and LPs approach the subject from different perspectives again.
Yet in practice, these subjects cannot always be separated.
The Carried Interest Bible has therefore been created as a practical technical reference covering the entire carried interest lifecycle.
It is intended to connect the legal and economic principles of carried interest with the practical realities of calculating, administering, accounting for, reporting and validating it.
Unlike a conventional book, this is a living knowledge base.
Individual articles can be expanded as market practice develops. Tax and regulatory pages can be updated when rules change. New structures and calculation issues can be added. Worked examples can be connected to the underlying concepts, and complex subjects can be explored without being constrained by the structure or length of a printed publication.
The objective is not merely to explain what carried interest is.
The objective is to explain how it actually works.
What the Bible covers
The Bible begins with the foundations of private equity and carried interest before moving progressively into the mechanics.
It covers areas including:
Carry fundamentals — the economic purpose of carried interest, terminology, participants and structures.
Fund waterfalls — whole-fund, deal-by-deal and hybrid waterfalls, preferred returns, catch-ups, carried interest rates and distribution mechanics.
Waterfall mechanics — the detailed calculation rules that turn contractual provisions into numbers.
Complex fund events — subsequent closings, recycling, subscription facilities, write-offs, partial realisations, restructurings and other events that can alter the waterfall.
Carry plans — how the GP's carried interest is divided among individual participants.
Vesting and leavers — vesting schedules, good and bad leavers, forfeitures, reallocations and related mechanics.
Tax and legal considerations — jurisdiction-specific treatment and the relationship between legal structure and economic outcome.
Accounting and reporting — recognition, accruals, reporting and reconciliation.
Carry data — the information required to calculate carried interest reliably and the controls required around that information.
Carry modelling — translating fund documentation into reproducible calculation models.
Controls and assurance — independent validation, recalculation, reconciliation and testing.
Technology — the role of specialist software, automation and artificial intelligence in carried interest processes.
LP and GP perspectives — how carried interest is viewed, managed and validated from both sides of the fund.
And throughout the Bible, worked examples and edge cases are used to show how apparently small differences in fund terms or data can produce materially different outcomes.
Calculation is only part of the problem
A mathematically correct waterfall can still produce the wrong answer.
The calculation is only as reliable as the rules and data supplied to it.
For that reason, The Carried Interest Bible pays particular attention to the distinction between:
Source facts — information obtained from authoritative records.
Derived facts — information calculated from source data.
Business rules — interpretations determining how fund terms are applied.
Assumptions — matters that have not been established as facts and must therefore be identified explicitly.
Missing data — information required to reach a reliable conclusion but which is not yet available.
This distinction becomes increasingly important as carried interest processes become more automated.
Technology can make calculations enormously more efficient. Artificial intelligence can assist with document analysis, data classification, anomaly detection and explanation. But neither automation nor AI eliminates the requirement for controlled data, deterministic calculations and professional judgement.
For a carried interest calculation to be relied upon, it should ultimately be explainable, reproducible and defensible.
Who this site is for
The Carried Interest Bible is written for practitioners working with carried interest from different perspectives.
That includes GPs, CFOs, COOs, fund controllers and finance teams responsible for implementing and administering carry; LPs seeking to understand or independently validate calculations; fund administrators responsible for operational processing; auditors reviewing calculations and controls; lawyers translating economic agreements into fund documentation; tax professionals dealing with the treatment of carry structures and participants; and technology professionals building the systems and data infrastructure supporting these processes.
It is also intended for people entering private markets who simply want to understand how carried interest works.
Some articles therefore explain fundamental concepts from first principles. Others deliberately go very deep.
How to use The Carried Interest Bible
You do not need to read the Bible from beginning to end.
If carried interest is new to you, begin with Carry Fundamentals and Fund Waterfalls.
If you already work with carry, use the Index to navigate directly to the subject you need.
Articles are interconnected so that a technical question can be followed through its related legal, calculation, data, accounting and operational consequences.
Where appropriate, articles contain worked examples, diagrams, calculation methodologies and links to related subjects.
Each technical article should also indicate when it was last reviewed, because carried interest practice, regulation and taxation continue to evolve.
A living technical reference
The Carried Interest Bible will never really be finished.
That is intentional.
Private-market structures continue to evolve. Fund terms change. New technologies emerge. Regulation and taxation change across jurisdictions. And unusual real-world situations continually expose questions that a theoretical description of carried interest may never anticipate.
Those developments will continue to be incorporated into this knowledge base.
The ambition is straightforward:
To create a comprehensive, practical and technically rigorous reference for carried interest in private markets.
Whether the question concerns a basic preferred-return calculation or an unusual provision buried deep inside an LPA, the aim is that eventually the natural response becomes:
Check The Carried Interest Bible.
The Carried Interest Bible
The technical reference for carried interest in private markets
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