A clawback is a contractual obligation requiring a General Partner to return previously received carried interest to Limited Partners if, at the end of the fund's life, the GP has received more carry than it was entitled to based on the fund's overall performance. It acts as a backstop against the American waterfall's deal-by-deal carry distribution: if early deals were highly profitable and later deals underperformed, the GP may have collected excess carry that must be returned.

The clawback amount is the difference between actual carry received and the carry that would have been payable on the fund's total lifetime returns. It is calculated at fund wind-up and is subject to a statute of limitations in most jurisdictions (typically 2–5 years after the last distribution). Clawback obligations create a contingent liability for GP partners personally — many fund agreements require GPs to maintain an escrow or guarantee to ensure clawback enforceability.

For LP investors, the strength of the clawback mechanism is a key diligence item: a clawback that requires GP principals to have personally pledged assets is far more robust than one relying on a depleted management company. In a Franco-Swiss context, the enforceability of clawback claims across borders (French courts enforcing Swiss-based GP obligations, or vice versa) requires specific contractual drafting. At Hectelion, we analyze clawback provisions in our LP advisory mandates.

At Hectelion, we analyze clawback provisions and their enforceability in our fund due diligence and LP advisory mandates.