What is the term for a performance bonus paid to the GP to incentivize out-performance?

What is the term for a performance bonus paid to the GP to incentivize out-performance?

• A. Promote
• B. Hurdle
• C. Carry
• D. Carve-out

Answer: (A)

Promote describes the additional share of profits that goes to the general partner when performance exceeds a set target. It acts as the performance bonus that incentivizes the GP to push for outperformance, since this upside is earned after returning invested capital and clearing the hurdle for the limited partners. The hurdle sets the minimum return required before any promote is earned, while carry (carried interest) is the broader term for the GP’s profit share. A hurdle is a threshold, not the bonus, and a carve-out is a reserved portion for a specific purpose, not the incentive itself. So the GP’s performance-based bonus is best described as the promote.

Promote describes the additional share of profits that goes to the general partner when performance exceeds a set target. It acts as the performance bonus that incentivizes the GP to push for outperformance, since this upside is earned after returning invested capital and clearing the hurdle for the limited partners. The hurdle sets the minimum return required before any promote is earned, while carry (carried interest) is the broader term for the GP’s profit share. A hurdle is a threshold, not the bonus, and a carve-out is a reserved portion for a specific purpose, not the incentive itself. So the GP’s performance-based bonus is best described as the promote.