Management Fee vs Carried Interest Calculator

Compare the two halves of a PE/VC fund GP's compensation — the management fee (2% of committed capital, paid every year) vs carried interest (20% of profits above a hurdle). Run scenarios for fund size, hold period, and return multiple to see which dominates.

Committed capital
Typical 1.5-2.5%
Most PE funds 10-12 years
Standard 20%
Gross return / committed capital
LP gets 8% before GP catches up
Total Mgmt Fees
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Total Carry
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Total GP Comp
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Capital Deployed (90% of commit)—
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Hurdle (Preferred Return)—
Carry-Eligible Profit (after hurdle)—
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Total Mgmt Fees—
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The Two-and-Twenty Model

PE and VC funds typically charge a 2% annual management fee on committed capital plus 20% carried interest on profits above a hurdle. This 'two-and-twenty' model has been the industry standard since the 1980s. On a $500M fund over 10 years, that's $100M in management fees alone — before any carry.

For top-quartile funds (3x+ MOIC), carry dwarfs management fees. For median or below-median funds, management fees dominate. This is why LPs scrutinize fund expense ratios and try to negotiate stepped-down fees in years 6+ (after the investment period ends).

Source: Cambridge Associates fund performance benchmarks + sec.gov Form PF data

Hurdle Rate and Catch-Up Mechanics

The hurdle (preferred return) is the minimum IRR LPs must earn before the GP earns any carry. Standard is 8% IRR compounded annually. Once the hurdle is met, a 'catch-up' provision often gives the GP 100% of profits until they've caught up to their target 20% of total profit.

Then the standard 80/20 split kicks in. With a 100% catch-up, the GP economically earns 20% of all profit. With a partial (50% or 25%) catch-up, the GP earns less because the hurdle bucket stays with LPs. See our hurdle rate waterfall calculator for full distribution mechanics.

American vs European Waterfall

American waterfall: GP earns carry deal-by-deal as each portfolio exit occurs (faster to GP). European waterfall: GP earns carry only after all LP capital plus hurdle has been returned across the entire fund (better LP protection, GP defers). LPs increasingly prefer European; US PE has historically used American.

European waterfall delays GP carry by 3-7 years on average. This affects GP cash flow and team retention but improves LP alignment. See our European vs American waterfall comparison for the side-by-side math.

Management Fee Step-Downs

Modern LP agreements often step down management fees after the investment period (typically year 5-6). A 2% fee on committed capital might drop to 1.5% on invested capital, or to 0.75% on remaining NAV. This reduces total management fee compensation by 30-50% over fund life.

Step-downs align GP incentives toward generating carry (which only pays on successful exits) rather than coasting on fees. They're standard at funds with sophisticated LP bases (institutional, endowments, large family offices).