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Clawback

A clause in a limited partnership agreement protecting LPs from paying more than the agreed upon carried interest percentage when factoring losses.


Comment

For example, if a general partner invests in 10 different transactions over the life of a fund and 5 investments make total profits of $500 million and 5 investments lose $500 million, with no clawback, the general partner would be entitled to $100 million (20% of $500 million). However, with a clawback clause, the general partner would be entitled to nothing given the firm failed to make any cumulative profits between the 10 investments.