Carried Interest – Going Beyond ‘Two And Twenty'

Carried interest is believed to have originated as long ago as the fourteenth century, in Renaissance Italy. Land-based merchants would commission ships to export their merchandise to ports around the Mediterranean, with the ship's captain and other crew members receiving an "interest" in the profits earned from the cargo that they carried.

Today, carried interest is a major component of the private equity GP compensation model colloquially known as 'two and twenty' –  an annual management fee of 2% of committed capital and an allocation of 20% of net profits (the carried interest), which usually accrues only after the investors have received back some or all of their capital plus a preferred return.