Module IV· IRR / MOICAdvanced
Question
How does 'whole fund' vs 'deal-by-deal' carry calculation work?
Answer
What
Two carry-calculation modes:
- Whole fund: carry is only paid out once the fund total clears the hurdle. Loss carry-forward applies (LP-friendly). The European standard.
- Deal-by-deal: carry per investment individually. No loss carry-forward (GP-friendly). The US standard post-2008.
Why the difference is material
Deal-by-deal carry can be 2–3x higher than whole fund. In a fund with a mix of winners and losers, whole fund gives LPs the "protection" of loss netting.
Deep diveShow more details
Example — fund with 5 investments
| Investment | Initial | Exit | Profit |
|---|---|---|---|
| Inv 1 | $100 | $250 | +$150 |
| Inv 2 | $100 | $50 | −$50 |
| Inv 3 | $100 | $200 | +$100 |
| Inv 4 | $100 | $80 | −$20 |
| Inv 5 | $100 | $300 | +$200 |
| Total | $500 | $880 | +$380 |
Whole fund (8% hurdle, 20% carry): profit over the hurdle $145m × 20% = $29m carry.
Deal-by-deal
carry only on the winning deals ($150 + $100 + $200 = $450) × 20% = $90m carry. Losing deals don't count.
Difference $61m — substantial.
Common pitfalls
- LP agreements are often not clearly worded: this can lead to disputes.
- "Clawback provisions" are critical with deal-by-deal: if later investments lose, the GP has to pay carry back.
Pitch tip
Question: "Which carry standard in the middle market?"
Answer: "Whole fund with an 8% hurdle is the standard in Europe. Deal-by-deal only in specific fund structures or smaller family-office funds. Top-quartile PE funds use whole fund — that's the LP default"