Management Fee Plus Carry is the compensation structure of the general partners who raise and run venture capital, private equity, and hedge funds: an annual management fee charged on the size of the fund, plus a share of the fund's gains, known as carried interest.
The management fee is charged every year on the size of the fund or the assets under management, typically 1% to 2%, and covers the firm's salaries and operating costs. Carried interest, or carry, is the general partners' share of the profits, typically 20%. Many funds pay it only after limited partners receive a minimum return called the hurdle rate. The best-known combination is 2 and 20: 2% of funds under management each year plus 20% of the gains over the hurdle rate.
The two components reward different things. The fee pays for operating the fund whatever its results, and carry rewards performance. Hedge funds often calculate carry annually, while private equity and venture funds usually realize it only as investments are exited. The structure contrasts with a 📝Venture Operating Company, which earns from a portfolio of productized revenue streams rather than from fees on investors' capital.