Broadening Carry Participation: A Growing Norm
Private equity firms are expanding carried interest participation beyond traditional investment teams. As carry becomes a core component of total compensation, firms are increasingly including non-investment professionals and junior talent, while evolving pool splits toward more team-favored models.
A notable trend emerging across the market is the broadening of carried interest participation beyond the traditional allocation to investment teams. Increasingly, firms are extending carried interest eligibility to non-investment professionals as part of an effort to foster an inclusive culture and strengthen firm-wide alignment. Ultimately, this trend reshapes the long-standing norms that limits carry to a small group of senior deal professionals, redefining it as a core component of modern compensation structures.
Expanding Participation
This broadening of eligibility now extends not only horizontally across functions, but also vertically within firms. Many organizations are pushing participation upward within the C-suite and downward to more junior professionals – addressing long-standing retention issues in which new hires or younger employees felt excluded from historically “elite” carry groups. Today, carry is widely regarded as a core component of total compensation rather than a discretionary or optional bonus element. Whereas a decade ago it was considered separate from salary, bonuses, and equity awards, it is now viewed as an essential part of the overall compensation mix.
Participation Limitations
At the same time, inclusion is not universal. Compliance and control functions generally remain excluded from carry programs due to regulatory and independence considerations. Exceptions do occur, particularly for legal and tax professionals who are directly involved in transactions, but these remain situational and inconsistent across firms.
The Rise of Phantom Carry
One of the primary barriers to wider participation remains the administrative complexity associated with large, diverse carry pools. In response, many firms are turning to phantom carry as a practical and flexible solution. This approach allows firms to expand participation, generally among non-investment professionals, while mitigating the operational burden typically associated with broader distribution.
Phantom Carry as a Practical Solution
One of the principal constraints on broader participation is administrative complexity. Managing large and diverse carry pools can create operational burdens, particularly when eligibility extends across multiple functions and seniority levels.
To address this, many firms are adopting phantom carry structures. These arrangements replicate the economic benefits of carried interest without conferring actual partnership interests. Phantom carry offers flexibility and scalability, making it especially attractive for non-investment professionals, while reducing governance and structural complications.
Shifting Economics
Economically, the split of carry pools is also evolving, as firms direct more carry to the team to finance the additional recipients. The traditional 50/50 split between team and house is shifting toward a more team-favored 60/40 model. This re-calibration is often attributed to the intensifying competition for talent, both of which have increased the bargaining power of deal teams and heightened recognition of their collective contribution to firm performance.
Ultimately, the expansion of carry participation signals a broader shift in how firms define alignment and reward contribution. While regulatory and administrative limits remain, carry is now widely viewed as a core element of total compensation. Firms that strike the right balance between inclusivity and practicality will be better positioned to attract and retain required talent.
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