Carried Interest Economics

Introduction

Carried interest remains a linchpin of private equity economics

—and a frequent source of tension. Outdated spreadsheets and opaque terms can lead to confusion, misalignment, or even litigation.

Challenges with Legacy Methods

– Manual calculations of hurdles and catch-up provisions are error-prone.

– Complex waterfalls across multiple funds can overload spreadsheet-based tracking.

How AI & Analytics Improve Transparency

1. Automated Waterfall Calculations

– Machine-driven tools reduce human errors and quickly reflect updated performance data.

2. Scenario Planning

– Quick “what-if” analyses for various exit times or multiple fund structures.

3. Negotiation Leverage

– Both GPs and LPs gain clarity on the economics of each deal, reducing friction.

Case Example

– A mid-sized fund discovered a 2% misallocation in distributions due to a manual formula error. An AI-based tool uncovered and corrected it, saving weeks of back-and-forth.

Conclusion

Reinventing carried interest modeling with AI fosters trust and precision, benefiting LP-GP relationships and reinforcing a spirit of shared success.