Carried Interest (Private Equity) Singapore: How Fund Managers Get Paid

Last updated: September 2026 | Category: INVESTING

Carried interest, often called “carry,” is the share of a private equity or venture capital fund’s profits that the fund manager receives as performance-based compensation, on top of the fixed annual management fee, typically only once the fund has returned a minimum threshold to its investors.

Not financial advice. All figures for educational reference only. Data as at September 2026.

Key Takeaways

The standard structure across the industry is “2 and 20”: a 2% annual management fee on committed capital, plus 20% of profits above an agreed hurdle rate as carried interest.
Carried interest is only paid once the fund clears its hurdle rate, typically around 8% annually, ensuring investors receive a baseline return before the manager shares in the upside.
Singapore has no separate carried interest tax regime and no capital gains tax, so carry that genuinely represents a return on the fund’s capital gains generally falls outside Singapore income tax.
In August 2026, MAS and the Ministry of Finance signalled a proposed exemption to more clearly cover a fund manager’s contractual share of profits tied to fund performance, as part of Singapore’s asset management hub package.
Because carried interest depends entirely on fund performance, it aligns the fund manager’s financial incentive with delivering strong returns for investors, rather than simply growing assets under management.

What Is Carried Interest?

Private equity and venture capital funds are typically structured as limited partnerships, with a general partner (GP) responsible for running the fund and limited partners (LPs) supplying most of the capital. The GP is compensated in two distinct ways: a management fee, usually 2% of committed capital each year, which covers the fund’s operating costs regardless of performance; and carried interest, usually 20% of the fund’s profits, which is only earned if the fund actually makes money for its investors above an agreed threshold.

This “2 and 20” structure has been the industry standard for decades because it aligns incentives: the management fee keeps the lights on, but the GP’s real upside comes from carried interest, which only materialises when LPs themselves have already been paid back their capital plus a minimum preferred return, known as the hurdle rate.

How Does Carried Interest Work in Singapore?

Singapore’s tax treatment of carried interest depends on its legal character rather than a dedicated carried-interest tax code. Since Singapore does not impose a general capital gains tax, carry that genuinely represents the fund manager’s share of the fund’s capital gains typically falls outside the scope of Singapore income tax. By contrast, amounts that are properly characterised as a management or performance fee for services rendered are treated as taxable trading income at the level of the fund management company.

In August 2026, MAS and the Ministry of Finance indicated a proposed exemption intended to more explicitly cover a contractual share of fund profits received by companies, partnerships or individuals for providing fund management services, where that share arises specifically because the fund outperformed a benchmark or hurdle — part of a broader package aimed at strengthening Singapore’s position as an asset management hub. This is a proposal under Singapore’s evolving asset management hub package, not yet settled law as of September 2026, so fund managers should confirm current guidance with a tax adviser before relying on it for structuring.

Carried Interest Example

A Singapore-based venture capital fund raises S$100 million from limited partners, with an 8% annual hurdle rate and standard 20% carried interest. After several years, the fund exits its portfolio companies and returns S$220 million to LPs — a S$120 million profit. Once LPs have received back their S$100 million capital plus the compounded 8% hurdle, the GP is entitled to 20% of the remaining profit above that threshold as carried interest.

If the profit above the hurdle works out to roughly S$90 million, the GP’s carried interest would be approximately S$18 million (20% of S$90 million) — split, in most funds, among the partners and senior investment professionals who ran the fund, on top of the management fees they collected annually over the fund’s life.

Advantages of Carried Interest

Aligns manager and investor incentives, since the GP only earns a meaningful payout if LPs themselves have already been made whole plus a minimum return.
Rewards genuine value creation rather than simply growing assets under management, unlike a pure percentage-of-AUM fee model.
Tax-efficient in Singapore when properly characterised as a capital gains return, given the absence of a general capital gains tax.
Attracts and retains top investment talent, since carry gives senior professionals a direct, uncapped stake in the fund’s success.

Risks and Limitations

Carry can create pressure to pursue riskier, higher-return strategies late in a fund’s life to clear the hurdle rate, potentially misaligned with LP risk appetite.
The tax characterisation of carried interest — capital gain versus fee income — is fact-specific and can be challenged by tax authorities if the structure does not reflect genuine economic substance.
LPs bear full downside risk while the GP’s carry is asymmetric — the GP shares in the upside without directly sharing in losses beyond any capital they themselves have committed to the fund.
The 2026 proposed exemption is not yet finalised law, so fund managers relying on favourable tax treatment should not assume the current proposal will be adopted exactly as described.
Complex multi-fund or cross-border structures can create disputes over how and when carry crystallises, particularly across funds with staggered vintage years.

Management Fee vs Carried Interest

Feature	Management Fee	Carried Interest
Typical rate	2% of committed capital annually	20% of profits above the hurdle
Paid regardless of performance?	Yes — covers operating costs	No — only if the fund clears its hurdle
Singapore tax treatment	Taxable trading income	Often outside tax scope if a genuine capital gain
Incentive alignment	Weak — rewards asset growth, not returns	Strong — rewards actual investor returns
When received	Throughout the fund’s life	Typically at exit, once profits are realised

Source: Industry fund structuring norms and MAS/MOF asset management hub package guidance, as at September 2026

The Bottom Line

For anyone evaluating a private equity or venture capital fund as an investor, understanding exactly how and when carried interest is calculated — including the hurdle rate and whether it is a “whole fund” or “deal-by-deal” carry structure — is essential to knowing how much of the fund’s profits actually reach limited partners versus the general partner.

Frequently Asked Questions

What is carried interest in private equity?

Carried interest, or “carry,” is the share of a private equity or venture capital fund’s profits that the fund manager receives as performance-based compensation, typically 20% of profits above an agreed hurdle rate, on top of the fixed annual management fee.

How is carried interest taxed in Singapore?

Singapore has no dedicated carried interest tax regime and no general capital gains tax, so carry that genuinely represents a return on the fund’s capital gains typically falls outside Singapore income tax, while amounts characterised as fee income for services are taxable.

What is a hurdle rate in a private equity fund?

A hurdle rate is the minimum annual return, commonly around 8%, that limited partners must receive before the general partner is entitled to any carried interest on the fund’s profits.

What is the standard fee structure for private equity funds?

The industry standard is “2 and 20”: a 2% annual management fee on committed capital, plus 20% of profits above the hurdle rate as carried interest.

Is Singapore introducing a new carried interest tax rule?

In August 2026, MAS and the Ministry of Finance signalled a proposed exemption intended to more clearly cover a fund manager’s contractual share of fund profits tied to performance, as part of Singapore’s asset management hub package, though this had not been finalised as law as of September 2026.

Carried Interest (Private Equity) Singapore