Fund Managers Pursue 'Super Carry' for Higher Profit Share

Private equity firms are increasingly pursuing a profit-sharing arrangement known as "super carry," which offers fund managers a share exceeding the traditional 20% of profits. This trend is driven by the desire to incentivize managers and secure higher returns, particularly when managing prized portfolio companies or launching new funds. Parthenon Capital Partners, for instance, sought "super carry" when extending its control of Kroll Bond Rating Agency and establishing a new fund to hold the company. This arrangement typically involves a higher percentage of profits allocated to the general partner (GP), which manages the fund, beyond the standard carried interest.

Carried interest, often referred to as "carry," is a performance fee in private equity and hedge funds. It allows the GP to receive a portion of the investment profits, typically 20%, after the investors (limited partners or LPs) have received their initial investment back plus a preferred return. The "super carry" structure elevates this percentage, aiming to provide GPs with a more substantial reward for successful investments and fund management. This can be particularly attractive when a fund is expected to generate exceptional returns or when a specific portfolio company is deemed a strategic asset with significant growth potential.

The pursuit of "super carry" reflects a competitive landscape within the private equity industry, where firms vie for top talent and lucrative deals. By offering enhanced profit-sharing, firms aim to attract and retain experienced fund managers who can deliver superior performance. This also signals a growing confidence among GPs in their ability to generate returns that justify the higher profit share. The structure can also be used as a tool to align the interests of GPs and LPs more closely, especially in long-term investment strategies or when managing complex, high-value assets.

While the standard carried interest of 20% has been a long-standing norm, the emergence of "super carry" suggests an evolution in how performance is rewarded in the private equity sector. This shift may be influenced by factors such as increased competition for deals, the rising cost of capital, and the growing sophistication of fund management strategies. The specifics of "super carry" arrangements can vary significantly, often negotiated on a deal-by-deal basis or for specific funds, and are contingent upon achieving predefined performance benchmarks and return thresholds for investors.