Clawback
A clawback is a contractual provision requiring the GP to return excess carried interest to ensure LPs receive the agreed economics over the fund’s life.
Definition
Clawback provisions protect LPs by ensuring that carried interest paid to the GP is ultimately consistent with the fund’s agreed profit split after all outcomes are realized. If early gains trigger carry payments and later losses reduce overall profits, a clawback can require the GP to repay carry so LPs are not overcharged. Allocator Context Clawbacks are common in private equity and venture where realizations occur over many years and early distributions can be uneven. Allocators evaluate clawback terms as a core alignment and governance mechanism, including whether it is firm-level or individual-level, timing, and enforceability. Decision Authority Legal and committee review is typical for clawback mechanics, especially for large commitments. Weak clawback protections can be a negotiating point and may slow approvals. Why It Matters for Fundraising Clear, fair clawback provisions signal alignment and governance maturity. Managers benefit from explaining clawback structure plainly and demonstrating operational capacity to administer it. Key Takeaways Protects LP economics over full fund life Important for long-duration strategies Legal enforceability matters Strong alignment signal in fundraising