Carried interest

Carried interest (or "carry") is the share of a private equity or venture capital fund's profits distributed to the fund management team (General Partners), after return of invested capital to Limited Partners and achievement of a minimum return threshold (hurdle rate). It typically represents 20% of net gains beyond the hurdle, aligning manager incentives with investor returns. Its tax treatment varies significantly between France — where specific legislation governs its qualification — and Switzerland, where it may benefit from capital gain exemption for private individuals under certain conditions.

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Example: a Swiss private equity fund raises CHF 100.0 million from LPs and generates CHF 160.0 million in exit proceeds. After returning the CHF 100.0 million invested and the 8% hurdle (CHF 8.0 million), the distributable net gain is CHF 52.0 million. The GPs receive 20% as carried interest (CHF 10.4 million), with the remaining CHF 41.6 million distributed to LPs — a return of 1.5x on invested capital excluding the carry.

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Hectelion advises management teams on the structuring and valuation of carried interest mechanisms in private equity and venture capital funds.