Hedge fund carried interest is a performance-based profit share allocated to fund managers as compensation for successful investment outcomes. In the USA, this practice is common in hedge funds and private equity, serving as an incentive that aligns managers’ interests with those of investors. Typically, carried interest is earned only after the fund achieves a minimum return, ensuring managers are rewarded for positive performance.

The concept of hedge fund carried interest is often discussed in relation to taxation and financial reporting. Since it represents potential future profits, accurate valuation and documentation are critical for compliance and transparency. Analysts frequently consider projected cash flows, market conditions, and fund performance when evaluating carried interest.

Beyond financial reporting, hedge fund carried interest plays a significant role in structuring compensation models and investment strategies. By linking rewards to results, it encourages fund managers to pursue strong, long-term growth for investors.