Carry DAW return reference

Based on the most helpful WSO content, here's what you need to know:

• MOIC (Multiple of Invested Capital): This is a key metric in private equity that measures the total value returned to investors relative to the amount of capital invested. It is often used to calculate carry (the share of profits that fund managers receive).

• Gross MOIC vs. Net MOIC: Gross MOIC refers to the total value before any fees or expenses are deducted. Net MOIC, on the other hand, is calculated after deducting fees and expenses, providing a clearer picture of the actual returns to investors.

• Heidrick & Struggles' MOIC Calculation: They use MOIC "above hurdle and after fees." This means:

  • Above Hurdle: The hurdle rate is the minimum return that must be achieved before the carry kicks in. Any returns above this rate are subject to carry.
  • After Fees: This includes management fees and other expenses. Typically, management fees are around 2% per year, which over 10 years would amount to 20% of the invested capital.

• Fees Included: The fees that should be included in the calculation are:

  • Management Fees: Usually around 2% per year.
  • Other Expenses: Any additional fees or expenses that the fund incurs.

• Hurdle Rate and Catch-Up: The hurdle rate is the minimum return required before carry is paid. A catch-up provision allows the fund manager to receive a higher percentage of profits once the hurdle rate is met, until they have "caught up" to their agreed share of profits.

In summary, when calculating carry DAW figures, the MOIC typically refers to net MOIC, which is after fees and above the hurdle rate. This ensures that the returns are accurately reflecting the actual profits distributed to investors after all expenses.

Sources: What Happens when a PE Fund Closes?, Value Buy-out vs Growth Buy-out Discussion from Associate Perspective, Q&A: Buy-Side Analyst, Q&A : Credit (DL, SSG), Principal comp