Carried Interest
Private Equity Financial Model (Free Excel Download)
Forecast fund profits, preferred returns, catch-up, carried interest, vesting, and distributions to analyse sponsor economics across investment outcomes.
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About this model
A carried-interest model translates a fund-level cash-flow schedule (annual capital calls and gross distributions over a 10-year life) and a small set of fund terms (size, GP commit %, hurdle, carry %, mgmt fee) into the four-tier European waterfall - return of capital, LP preferred return, GP catch-up, and an 80/20 split of remainder - and produces year-by-year LP MoIC / DPI and GP carry dollars. The workbook is built around the constraint every closed-end private fund shares: capital is called over the investment period, distributed during the harvest period, and split between LPs and GPs by a waterfall that gives the GP its share of upside only after LPs have recovered capital and earned a hurdle. Six sheets - Cover, Assumptions, Fund_Flows, Waterfall, LP_GP_Returns, Dashboard - tie everything to a single Assumptions tab where every input is a named range or a single per-year schedule cell.
The Fund_Flows sheet computes per-year and cumulative capital called (split between LP and GP by GP_Commit_Pct), gross distribution (cap-call and distribution percentages applied to fund size), and management fee (constant percent of fund size). The Waterfall sheet then runs the four-tier waterfall on a cumulative basis: Tier 1 returns capital pro-rata between LP and GP, capped by the total cumulative capital called; Tier 2 pays an LP preferred return computed by accruing the hurdle rate on outstanding LP capital after Tier 1 reductions, with a mid-year convention on the year's new contributions; Tier 3 catches the GP up to its carry share of post-capital profit using T3 = T2 × Carry / (1 - Carry); Tier 4 splits the remainder 80/20 between LP and GP. Cumulative LP and GP distributions are the sum of the respective tier payments, and the GP carry dollar is Tier 3 plus Tier 4 GP share. Annual flows fall out as cumulative deltas year over year.
The LP_GP_Returns sheet rolls each side onto its own block: per-year cumulative contribution, distribution, profit (distribution minus contribution), MoIC (distribution / contribution), DPI (same as MoIC for closed funds with no remaining NAV), and for the GP the carry dollar and the carry share of total profit. The Dashboard collapses fund-life-end values onto a one-page report: fund terms (size, GP commit %, hurdle, carry %, life), LP economics (committed, distributed, profit, MoIC, DPI, pref-return-achieved Yes / No), GP economics (committed, distributed, carry $, MoIC including carry, carry share of total profit), and a status block with an LP MoIC traffic-light flag (green / amber / off) against user-set thresholds and a reconciliation check that confirms LP + GP distribution equals fund distribution within tolerance. PE and VC fund managers, LP investment teams, fund administrators, and finance students use this template for term-sheet sensitivity (flex hurdle and carry % and read the LP / GP impact), back-of-envelope LP underwriting (drop in a fund's actual call and distribution schedule), and as an educational walkthrough of the four-tier European waterfall with every tier on its own row.
What every model includes
Live formulas, no hardcoded values
Outputs are driven by live formulas, so the workbook updates from its assumptions instead of relying on hardcoded results.
All assumptions in one tab
Inputs are clearly marked in the Assumptions tab and separated from calculations, making it clear what to change and what to leave intact.
Statements always balancing
For integrated-statement models, the balance sheet, cash flow, and supporting schedules tie through properly.
Distinct schedules for clarity
Debt, working capital, taxes, and cash flow can get messy quickly. We group calculations in clear schedules, not across disconnected tabs.
No hidden macros or external links
There are no unexplained external workbook links or macros to undermine auditability or portability.
Changes flow through the model
Update a key driver and see the impact carry through the forecast, financing, and return outputs. We never use hardcoded numbers in formulas.
What's inside the Carried Interest
- Fund-term inputs: fund size, GP commitment %, hurdle rate, carry %, mgmt fee, fund life
- 10-year capital-call and gross-distribution schedules expressed as % of fund size
- Fund_Flows sheet: per-year and cumulative capital called (total / LP / GP), gross distribution, mgmt fee
- Tier 1 returns capital pro-rata between LP and GP, capped at cumulative capital called
- Tier 2 pays LP preferred return accrued on outstanding LP capital with a mid-year convention on new contributions
- Tier 3 catches the GP up to its carry share of post-capital profit (100% catch-up)
- Tier 4 splits the remainder 80/20 between LP and GP
- LP_GP_Returns sheet: per-year contribution, distribution, profit, MoIC, DPI for both LP and GP plus GP carry $
Carried Interest Model: How the GP–LP Waterfall Works
This carried interest model explains the GP–LP economics of a closed-end private fund. It links fund terms, capital-call and distribution schedules, management fees and a four-tier waterfall to LP net returns and GP carry.
The public file is a values-only preview of the underlying workbook.
What Drives the Fund's Cash Flows
The fund is defined by size, GP commitment percentage, vintage year and a term split into investment and harvest periods. Three scenario rows supply annual capital-call, distribution and NAV percentages; the active row is chosen by a scenario switch.
- Capital called in each year equals the active call percentage times fund size, and the LP and GP portions split by the GP commitment. Gross distributions follow the same pattern on the distribution percentage row.
- Management fees are charged on an annual base, stepping down from an investment-period rate to a lower post-investment rate, with a fee offset reducing the gross fee. Net distribution, after fees and fund expenses, is what the waterfall receives.
The Four-Tier Waterfall and Carry Calculation
The European whole-fund waterfall runs once across the fund's life. Tier 1 returns all paid-in capital to LPs and GPs pro-rata to commitments.
- Tier 2 then pays LPs a preferred return on outstanding LP capital, compounding by default at the hurdle rate. Tier 3 is the GP catch-up, where the GP takes a parameterised share of the next proceeds until cumulative GP economics reach the carry percentage of profit.
- Tier 4 splits the remainder at the carry rate, with an optional second-hurdle and higher carry rate. Because each tier is capped, cumulative carry cannot exceed entitlement, so clawback under this mode is structurally zero.
An alternative deal-by-deal mode runs the same tiers over a five-vintage grid with a fund-level clawback test, measuring carry paid against carry entitled.
Returns, GP Economics and Diagnostics
Returns are tracked per year for both LPs and GPs on contributions, distributions, profit, MoIC, DPI, RVPI and TVPI, with XIRR on dated cash-flow streams.
- A GP economics view combines net management fees, carry, the GP commitment distribution and expenses to produce management-company profit and GP IRR.
- A dashboard summarises headline metrics and shows a traffic-light status against return thresholds, plus a reconciliation check.
- A checks sheet tests the model across reconciliation, monotonicity, range validity and mode toggles, all reported as pass or fail with conditional formatting.
Practical Use and Documented Limits
This model is a fund-level GP-LP economics tool for comparing how terms, fee schedules and waterfall structures shape LP net returns and GP earnings. It suits evaluating carry timing, hurdle and catch-up effects, and how fees and expenses flow through to net distributions.
- Its documented limits matter: the American mode is a simplified five-deal, equal-weight grid rather than a deal underwriting model; NAV is parameterised as a multiple of paid-in capital decaying to zero by year ten; tax rates are captured but do not flow into net cash flows; and recycling and bridge-interest mechanics are captured as inputs but not modelled automatically.
- Multi-currency treatment is also out of scope.
Model Structure and Inputs
Inputs are grouped into fund terms, fee terms, waterfall terms and fund mechanics, with scenario matrices and status thresholds.
- Fund flows drive the waterfall and the return sheets through documented dependencies.
- Two circularity risks are resolved by referencing prior-year values: the fee base after the step-down year and the second-hurdle test.
- The values-only preview shows the resulting outputs without live formulas.
Formatted to IB standards
Named theme colors repaint the whole workbook in one click, on top of an investment-banking structure with clear input, output, and cross-sheet reference styling - brand-ready, institutional-grade, and fully auditable.
Created by ex-finance professionals
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Frequently asked
What is carried interest?+
Carried interest is the GP's share of investment profits in a private fund (PE, VC, real-estate, infrastructure). The standard structure pays GP a percentage (typically 20%) of profits above a preferred return to LPs (typically 8%), after LPs have first recovered their contributed capital. It is the core economic incentive that aligns GP and LP.
European vs American waterfall - which is this?+
This is the European (whole-fund) waterfall. LPs receive all contributed capital and the full preferred return before the GP earns any carry. American waterfalls pay carry deal-by-deal subject to a fund-level clawback at termination. European is more LP-friendly and is the dominant convention in PE buyout funds; American is more common in US VC.
How is the preferred return calculated?+
Pref accrues annually on outstanding LP capital - capital that has been called and not yet returned. The model uses a mid-year convention on new contributions (half a year of accrual on the year's new capital) and full-year accrual on the outstanding balance carried in. Pref is not reduced when paid; it is satisfied by Tier 2 distribution against the cumulative accrued amount.
What is GP catch-up?+
Once LP has been paid back its capital and preferred return, the GP needs to receive enough of the next dollars to bring its share of post-capital profit up to the carry rate. With 100% catch-up at 20% carry, the GP receives 100% of Tier 3 dollars until its cumulative carry equals 20% of cumulative post-capital profit (T2 + T3 combined). Tier 4 then splits remaining dollars 80/20.
Does the model handle clawback?+
Not explicitly. Clawback is the LP's claim against the GP if carry was paid out per-deal early in the fund and the fund ultimately fails to clear the hurdle. European waterfall computed on a cumulative basis (as here) cannot pay carry until pref is fully covered, so clawback risk is zero by construction. Use the American-waterfall variant if clawback exposure is a live question.
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