What is Promote (Carried Interest)?
The GP's disproportionate share of profits above the preferred return, rewarding the sponsor for deal performance.
Definition
The promote (also called carried interest or "carry") is the GP's share of profits that exceeds their proportional equity contribution. It is the primary incentive mechanism in syndication structures, rewarding the GP for generating returns above the preferred return threshold. Promotes are defined within the waterfall distribution structure and typically increase at higher return tiers — for example, a GP might earn 20% of profits between an 8-12% IRR and 30% above a 15% IRR. This tiered structure aligns GP and LP incentives: the GP earns more only when investors earn more.
Example
A syndication distributes $2,000,000 in profits above the 8% preferred return. The operating agreement specifies a 70/30 LP/GP split at this tier. The GP receives $600,000 in promote — despite having invested only 5% of the equity. If the deal exceeds a 15% IRR hurdle, the split shifts to 60/40, and the GP's promote increases proportionally.
Why It Matters for Syndication
The promote is where GPs earn the majority of their compensation in successful deals. Accurately modeling promote structures at every waterfall tier is essential for both GP economics analysis and LP return presentations. Syndication Analyzer calculates promote allocations automatically across unlimited waterfall tiers, showing exactly how much the GP and each LP class earn at every performance level.
Related Terms
Waterfall Distribution
A tiered structure that governs how cash flow and profits are distributed between LPs and the GP in a syndication.
Hurdle Rate
The return threshold that must be exceeded before distributions escalate to the next tier of the waterfall.
General Partner (GP)
The deal sponsor who manages the syndication, makes operational decisions, and earns fees and profit participation.
Preferred Return (Pref)
The minimum annualized return that must be paid to LPs before the GP participates in any profit distributions.
Model Promote in Your Deals
Syndication Analyzer calculates promote automatically across every scenario, investor class, and waterfall tier.
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