Carried interest, or carry, is the part of a private equity offer most bankers understand least, and it is the part that depends most on things nobody at the firm controls: exits, timing and the market.
Every fall, we talk with bankers holding a buy-side offer and a spreadsheet. The base salary and bonus are easy to compare with what they earn at the bank. The carry line is where the conversation slows down. A recruiter or a partner has said something like “you’ll be in the carry pool,” maybe with a number of points attached, and the banker is trying to work out what that is worth and when it shows up.
This year the question matters more than usual. Johnson Associates expects incentive pay for M&A advisory bankers to rise 15% to 20% in 2026. Its August projections had bonuses at large private equity firms up only 2.5% to 7.5%, flat at smaller and mid-sized PE firms, and down as much as 10% in private credit. The Wall Street Journal reported this month that nearly a third of the senior managing directors in Blackstone’s real estate business have left over the past three years as the unit’s funds slumped. None of that means the buy side is a bad move. It does mean the cash gap between a strong year at a bank and a first year in private equity could be wider than people expect, and that the part of buy-side pay meant to close the gap, carry, is slow and uncertain by design.
Here is how carried interest actually works, what each level typically gets, and how to think about it when you are weighing an offer.
What carried interest is, in plain English
Carried interest is the general partner’s share of a fund’s profits. The common figure is about 20% of profits, though it can range from roughly 15% to 30% depending on the fund and how much demand there was from investors when it raised money. Before the GP earns any of that, the fund usually has to return investors’ capital and often clear a preferred return, or hurdle.
The firm then divides its share among its people. That pool is what you are being offered a slice of. When someone says you will get “points,” they usually mean a percentage of the firm’s carry pool for a specific fund, not a percentage of the fund’s profits. A small allocation in a large, successful fund can be worth a lot. The same allocation in a fund that struggles to sell its companies could be worth very little, or nothing.
Three terms matter most when you read the paperwork:
- The waterfall. In a “European,” or whole-fund, waterfall, carry is paid only after investors have their capital back across the whole fund. In an “American,” or deal-by-deal, waterfall, carry can be paid as individual deals are sold. Whole-fund waterfalls are slower for the people holding carry, sometimes by years.
- Vesting. Your allocation usually vests over time. If you leave before it vests, you typically forfeit the unvested part.
- Clawback. If the GP is paid carry early and the fund later falls short, the GP may have to give some back. Firms often hold back part of each carry distribution for that reason.
For a fuller primer on how firms structure salary, bonus and carry by level, see our earlier piece, Private Equity Salary, Bonus and Carry.
Why carried interest takes so long to pay
The short answer is that carried interest is paid when companies are sold, and companies are taking longer to sell.
Bain & Company’s 2026 Global Private Equity Report found that distributions to investors were 14% of net asset value in 2025, the lowest level since 2008-09 and the fourth straight year below 15%. Bain counted about 32,000 unsold portfolio companies worth $3.8 trillion. Buyout funds were holding companies for about seven years at exit, up from an average of five to six years over 2010-2021.
Think about what that means for a new associate. A fund raised a year or two before you arrive might make its last investments around the time you join. If those companies are held for six or seven years, and the waterfall requires investors to be made whole first, the first meaningful carry check could be close to a decade away. That is not a flaw in any one firm. It is how the model works when exits are slow.
It also explains why the people who most need to understand carry are often the ones it pays last. Senior partners hold carry across several older funds that are already distributing. A new hire holds a small slice of the newest fund, the one furthest from paying.
What each level typically gets
Carried interest rises steeply with seniority and with fund size. Heidrick & Struggles’ 2024 North American private equity compensation survey shows how steep. Among firms with $10 billion or more in assets, respondents reported an average estimated value of carry in their current fund of about $1.15 million for associates and senior associates, $3.6 million for vice presidents, $10.3 million for principals and $34.6 million for partners and managing directors. At firms with $500 million to $749 million in assets, the averages were about $517,000, $1.8 million, $4.2 million and $8.5 million.
Two cautions. First, those are estimated values over the life of a fund, not annual pay, and they assume the fund performs. Second, averages hide a wide spread; plenty of people in the same seat hold less.
Here is how it tends to play out by level:
- Analysts and pre-MBA associates. Often no carry at all, or a small, symbolic allocation at some firms. At this level the offer is mostly salary and bonus, so compare it with your bank package on a cash basis.
- Post-MBA and senior associates. A first real allocation is common, but small relative to what senior people hold. Vesting schedules matter more here than the headline number, because many associates move on before they fully vest.
- Vice presidents. Allocations become meaningful. This is often the level where carry starts to shape decisions about whether to stay.
- Principals, partners and MDs. Carry can become the largest part of total pay over time. It is also the reason senior people are slow to leave: walking away can mean forfeiting years of unvested carry.
How vesting and leaving interact
The Heidrick survey found that the most common time for carry to fully vest is four years, reported by about a third of respondents, followed by five years and then eight years. That sounds manageable until you set it next to the timeline above. A four-year vest on a fund that pays out over a decade means you could be fully vested years before you see any cash, and partially vested if you leave early.
That has practical consequences:
- Leaving is expensive, in both directions. A banker who leaves a bank gives up unvested deferred stock. A PE professional who leaves a firm gives up unvested carry. Each side knows this, which is why buyouts of unvested pay are part of senior hiring negotiations on the buy side as much as on the sell side.
- “Good leaver” terms matter. Fund documents often treat people differently depending on why they leave. Ask what happens to vested and unvested carry if you resign, if you are let go, or if the firm restructures the team.
- Turnover at the top changes your math. When senior people leave a platform, their unvested carry is often reallocated. That can help those who stay, but it can also be a sign that a fund’s prospects have dimmed. The Blackstone real estate departures are a public reminder that senior people leave even very strong firms when a strategy goes through a hard stretch.
How to weigh carry against a bank package
When a banker brings us a buy-side offer, we suggest treating the comparison in three layers.
1. Compare cash to cash. Put the buy-side salary and expected bonus next to your bank base and a realistic bonus range. In a year when M&A advisory pay is rising and PE bonuses are not, that gap could be wider than it was a year or two ago. Do not let a carry allocation make up for a cash cut you cannot live with.
2. Value the carry conservatively. Ask which fund the allocation is in, how far along that fund is in investing, what the waterfall is, what the vesting schedule is, and how the firm’s older funds have performed. Then discount heavily for time and for risk. A carry number you would not see for eight to ten years is worth far less today than the headline suggests, and it could be worth nothing if the fund struggles.
3. Count what you leave behind. Unvested deferred stock at the bank is real money with a known vesting date. Some firms will buy out part of it; many will not at junior levels. If they will not, put the forfeited amount on the cost side of the ledger. Our piece on the narrowing private equity door covers how the cost of leaving mid-cycle plays into the decision.
Questions worth asking before you sign:
- Which fund is my allocation in, and when did it start investing?
- Is the waterfall whole-fund or deal-by-deal?
- What is the vesting schedule, and what happens to vested and unvested carry if I leave?
- Is any of my carry held back for clawback, and for how long?
- Do I have to invest my own money alongside the fund, and how much?
- Will I be added to future funds, and how are allocations reviewed?
A firm that answers these clearly is giving you useful information. A firm that is vague is also giving you information.
How carried interest differs by firm type
Large platforms. Bigger funds mean bigger potential carry, but also more layers of people sharing the pool and, often, more formal and longer vesting. Many large firms also pay a larger share of total compensation in cash, which can make the first few years easier to compare with a bank.
Middle-market funds. Smaller funds can mean a larger percentage of the pool for each person, but the dollar value depends on the fund’s size and performance. In a year when Johnson Associates expects bonuses at smaller and mid-sized firms to be flat, it is worth asking how the firm is doing on fundraising and exits.
Private credit and real estate. Credit funds often have different incentive structures from buyout funds, and many credit roles lean more on cash bonuses. Real estate funds are tied closely to property values and the cycle. In both cases, ask how incentive pay is calculated rather than assuming it works like buyout carry.
What it means for your career
Carry is real and, over a long career, it can be the most valuable thing you earn. But it rewards patience, staying power and good timing more than it rewards a single great year. If you are moving to the buy side, go because you want to be an investor and because the seat fits where you want to be in ten years, not because a carry number on an offer letter looks large.
If you are weighing an offer now, the practical moves are simple: compare cash to cash, discount the carry for time and risk, count what you leave behind, and ask the questions above. If the answers still point to the buy side, you will be going in with your eyes open. If they do not, a strong year at the bank is not a bad place to be.
If you would like a confidential sounding board on a buy-side offer, we are always happy to talk.