Clawback

A provision requiring a manager to return performance fees or carried interest already paid if later losses mean it has received more than the final results justify.

Where you will meet it

Clawback appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain the mechanisms that tie a private manager's incentives to its investors' interests, and work out and assess the net returns limited partners keep after management fees and carried interest
  CFA Level III · Private Markets Pathway

  “Interests are aligned through the GP's own commitment, a carried interest paid only on profits, a hurdle or preferred return, a catch-up, clawback provisions, fee offsets and key-person clauses.”

• Contrast the main forms of investment manager contract, covering their key provisions and their advantages and drawbacks
  CFA Level III · Performance Measurement

  “Key provisions to compare include the base fee, the share of excess return, the benchmark or hurdle rate, high-water marks, fee caps and floors, clawbacks, the measurement period and crystallisation frequency.”

See also

Carried interest

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary