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Clawback

A provision requiring a manager to return previously received carried interest if later losses mean they were overpaid across the fund's life.

Clawback — A provision requiring a manager to return previously received carried interest if later losses mean they were overpaid across the fund's life.

A clawback is only as strong as its security — escrow of a portion of carry distributions is the most reliable protection, while an unsecured personal guarantee from individuals who may have since spent the distributions is considerably weaker in practice.

Frequently asked questions

How is a clawback actually enforced?

Through mechanisms specified in the LPA — commonly an escrow holdback of a portion of carry distributions, sometimes backed by personal guarantees from the individuals who received it.

Is a clawback calculated before or after tax?

This varies by fund and matters significantly — a clawback calculated net of the tax the recipient already paid recovers meaningfully less than one calculated gross.

Nothing on this page is legal, tax, or investment advice. SeRuM is not a registered broker-dealer, not a placement agent, and not an investment adviser.

WaterfallThe order in which distributions are split between investors and the manager, through retu Carried interestThe manager's share of fund profits, typically paid after a preferred return and a catch-u GP commitmentThe manager's own capital in the fund. Allocators care about the amount relative to the pa

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