Fund Structure
Clawback
A provision requiring GPs to return previously distributed carry to LPs if the fund ultimately underperforms — protecting LPs from overpaying carry on early exits.
A clawback provision protects LPs from a scenario where a GP collects carry on early exits, but the fund ultimately underperforms on a whole-portfolio basis. Example: a fund earns large carry on an early exit, distributes it to GPs, but later portfolio companies fail and the overall fund returns less than 1x. Without clawback, LPs would have overpaid carry. With clawback, GPs must return the excess carry. Clawbacks are standard in fund agreements but difficult to enforce — GPs may have spent the carry or distributed it to partners who are no longer with the firm. Most funds require GPs to escrow a portion of carry (typically 25%) to cover potential clawbacks. The clawback obligation typically survives for several years after the fund closes.