Carried interest clawback meaning

A carried interest clawback is a contractual mechanism in private equity and venture capital limited partnership agreements (LPAs) or fund documentation requiring the general partner (GP) or carried interest vehicle to repay any excess carried interest, ensuring that, across the life of the fund, it does not receive more than the agreed carry percentage. It is most relevant in deal‑by‑deal (American‑style) distribution models, where early exits may trigger carry before later losses are realised; a clawback rebalances at termination or agreed interim true‑ups, and is rarer where a whole‑of‑fund (European) waterfall applies. If, for example, the carry is 20% but the carry recipients have received 21% of aggregate partnership profits, limited partners can require repayment of the extra 1%. Not a statutory term, it is a market expression used consistently across England and Wales, Scotland, Northern Ireland and Ireland. Typical drafting addresses: repayment on an after‑tax basis; interest on amounts due; security (escrow/holdbacks), GP and management guarantees, and partner indemnities; interaction with the distribution waterfall, preferred return and catch‑up; caps and timing of enforcement. It protects investors, particularly in deal‑by‑deal funds, and often sits alongside LP giveback and netting provisions.