In PCA, what is a 'carried interest'?

The term 'carried interest' refers to a share of profits that investment managers or general partners receive from the funds they manage, typically contingent upon the performance of the investment. This structure is designed to align the interests of the managers with those of the investors or limited partners. When a fund generates returns that exceed a certain threshold, the carried interest incentivizes managers to pursue higher returns and ensures they benefit from the success of their investment decisions.

Carried interest is often expressed as a percentage of the profits, which means that managers stand to gain significantly from successful investments, fostering a performance-oriented culture within private equity and similar investment structures. This mechanism is crucial for attracting top talent in investment management, as the potential for substantial earnings through carried interest can be a strong motivating factor.