In a deal-by-deal distribution model, carry can precede full investor capital return. Which statement is true?

In a deal-by-deal distribution model, carry can precede full investor capital return. Which statement is true?

• A. Carry is paid before any return of capital
• B. Carry is paid only after investors receive capital back and preferred return
• C. Carry is never paid in a deal-by-deal model
• D. Carry is paid automatically on closing of each deal

Answer: (D)

Deal-by-deal distributions let the carried interest be earned for each deal on its own when that deal is profitable, rather than waiting for every LP’s capital to be returned across the entire fund. This structure means the GP can start receiving carry from a specific deal as soon as that deal generates a distribution of profits and clears any deal-specific hurdles, even if other investments in the fund haven’t yet returned all their capital. In many setups, that carry can be triggered at the deal’s distribution event, i.e., when that deal closes and profits are realized. So the statement that carry is paid automatically on closing of each deal captures the per-deal timing aspect of carry under a deal-by-deal model. The other options describe fund-wide sequencing or imply no carry, which don’t fit the deal-by-deal approach as accurately.

Deal-by-deal distributions let the carried interest be earned for each deal on its own when that deal is profitable, rather than waiting for every LP’s capital to be returned across the entire fund. This structure means the GP can start receiving carry from a specific deal as soon as that deal generates a distribution of profits and clears any deal-specific hurdles, even if other investments in the fund haven’t yet returned all their capital. In many setups, that carry can be triggered at the deal’s distribution event, i.e., when that deal closes and profits are realized. So the statement that carry is paid automatically on closing of each deal captures the per-deal timing aspect of carry under a deal-by-deal model. The other options describe fund-wide sequencing or imply no carry, which don’t fit the deal-by-deal approach as accurately.