Super Carry

Private equity-style funds abroad follow a standard fee pattern. It is called the "2-20" structure: a 2% annual management fee, plus 20% of profits above the preferred return, called carry.

Some managers can charge more than that 20% norm. This is called super carry. It happens when a manager has a strong track record and investors want in badly. That gives the manager room to negotiate a higher carry.

The workbook frames super carry as a function of negotiating leverage rather than a formally defined regulatory term: "Super carry or higher carry is a term used to denote higher additional returns charged by highly sought after funds that have a very high return track record in fund performance." Because these funds are in high demand from investors, they can negotiate above the industry-norm additional return.

The workbook adds an important qualification: super carry is not automatically bad for investors. "In some instances, super carry may be in the interests of investors if they negotiate a super carry in lieu of higher management fee to the fund manager" — a fund might trade a lower, more investor-friendly management fee for a higher carry, aligning the manager's incentive more tightly with actually delivering strong performance, rather than simply collecting a larger fixed fee regardless of outcome.

Super carry sits within the broader alignment-of-interest analysis a distributor is expected to run during fund due diligence, alongside sponsor commitment, the distribution waterfall, catch-up and clawback terms, and competing or outside interests of the manager. The workbook notes that hard investor negotiation is generally driving down management fee and expense structures industry-wide, making it harder for managers to command higher carry and catch-up clauses than in the past.

Meridian Alpha Ventures has delivered a 28% net IRR across its last two funds, well above peer averages, and its third fund is oversubscribed within weeks of launch. Rather than the standard 2-20 structure, Meridian negotiates a 1% management fee and 25% carry with its investors — a super carry arrangement.

For an investor committing Rs 10 crore, the lower 1% management fee saves Rs 10 lakh a year compared to the standard 2% (a saving of Rs 20 lakh over two years, before compounding), while the extra 5 percentage points of carry apply only if the fund actually generates profit above the preferred return — meaning the investor pays more only when Meridian genuinely delivers outsized performance, not as a fixed cost regardless of outcome.

A weaker, first-time manager with no comparable track record has no such negotiating power: investors doing fund due diligence on that manager would instead push for carry below the 20% norm, or insist on a standard 2-20 structure, rather than granting any super carry at all.

Chapter 8 (Fund Due Diligence — Investor Perspective), section 8.2.2 (Alignment of Interests), names super carry directly within the list of areas requiring investor scrutiny during fund selection — sponsor commitment, management fee and carry terms including super-carry, distribution waterfall, catch-up and clawback, competing interests, governance, related-party transactions and co-investment opportunities. Expect super carry tested as a track-record-driven negotiating outcome, and the workbook's own point — that a super carry traded for a lower management fee can be investor-friendly — tested as a nuance against the assumption that "higher fees are always worse for investors".

• Super carry is a negotiating outcome, not a defined regulatory ceiling or threshold — there is no fixed percentage in the workbook marking where ordinary carry ends and "super" carry begins; it is relative to the prevailing 20% industry norm.
• A higher carry is not automatically bad for investors — the workbook explicitly notes it can work in investors' favour when traded for a lower management fee, aligning manager incentives with actual performance rather than fixed fee collection.
• Super carry is available only to managers with strong track records and high investor demand — a first-time or underperforming manager has no comparable negotiating position to command it.
• The industry trend the workbook notes is investors negotiating fees and carry down, not up — super carry survives only where a manager's performance genuinely justifies investors accepting above-norm terms.