Carry treatment has two components: what happens to carry accrued in the original fund and what carry arrangement applies in the new vehicle. Both are disclosed in the transaction materials and the continuation vehicle's governing documents.
Accrued carry in the original fund:
- Crystallized. The GP's unrealized carry on the transferred assets is calculated and paid (or treated as realized) at the transaction price.
- Rolled. The accrued carry is transferred into the new vehicle rather than being paid out.
- Combination. A portion is crystallized and a portion is rolled, which is common in practice.
The continuation vehicle has its own carry arrangement, which may differ from the original fund. The new carry applies to returns generated by the CV above its hurdle rate. Carry treatment is a central negotiation point. Secondary buyers pay close attention to how much carry the GP rolls versus crystallizes, because carry rollover signals GP alignment with the new vehicle's performance.
For more on economic terms, see the Continuation Vehicle Economics deep dive. For background on crystallization, see the Carry Crystallization glossary entry.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.