Carried interest retention following GP removal: implications for LPs

In both North America- and Europe-based private equity and real estate funds, the right of LPs to remove the GP with cause has become a standard governance provision. Almost all modern limited partnership agreements (LPAs) now include a cause-based removal mechanism, making it a common feature in fund structures. The core question for investors centers on the economic consequences that follow a GP’s removal with cause – specifically, whether the GP retains the carried interest and, if so, to what extent.

Considerations for keeping carried interest after removal

Carried interest is the primary performance-based remuneration for the GP, intended to ensure their financial interests are closely aligned with those of the fund’s investors. It rewards the GP for strong performance and, crucially, is intended to be at risk if the GP fails in its duties to the fund’s investors. Removal with cause – typically triggered by serious misconduct, fraud, gross negligence, or other fundamental breaches – should, in principle, carry real economic consequences.

Where GPs are allowed to retain a substantial portion of their carried interest following with cause removal raises important points for LPs to consider:

• Accountability and incentives. When a GP is permitted to retain most or all of its carried interest following removal with cause, it may lessen the effectiveness of removal as a disciplinary tool. The economic repercussions, which are intended to reinforce responsible behavior, may be diminished.

• Alignment of interests. Carried interest is structured to align the GP’s interests with those of the LPs. If a GP retains substantial carry after serious breaches, the alignment between GP and LP interests may be weakened, potentially influencing future conduct.

• Blurs the distinction between cause and without-cause removal. While without cause removals typically result in the GP retaining 100% of carried interest (reflecting the absence of wrongdoing), some with cause removals also leave the GP’s economics unaffected. This can blur the line between different removal scenarios, impacting how LPs interpret governance provisions.

• Governance signals. High rates of carry retention following removal with cause may indicate that fund governance structures do not always provide strong economic consequences for misconduct, which LPs may wish to evaluate when considering fund terms.

By understanding these provisions, LPs can better assess the implications of carried interest retention and make informed decisions regarding fund governance and their own investment strategies.

Inconsistency in economic outcomes

The treatment of carried interest in without cause GP removal scenarios is nuanced. In these circumstances, economic neutrality – where the GP retains their full carried interest – occurs in up to 56% of private equity and real estate funds across Europe and North America, according to Preqin Term Intelligence (Fig. 1). GPs keeping 100% of their carried interest when removed without cause reflects the principle that removal in the absence of wrongdoing should not have punitive economic consequences. This economic neutrality is not absolute, however. Preqin Term Intelligence indicates that only 6% of North American private equity funds specify a 75% carry outcome, and 5% of real estate funds a 50% outcome, with European private equity funds showing even lower rates (around 3% at the 75% level).

Fig. 1: The treatment of carried interest in without cause GP removal scenarios is nuanced
GP removal carried interest entitlement – without cause, Europe vs. North America

_{Source: Preqin Term Intelligence, as of February 2026
To see the data and commentary relating to the treatment of carried interest in with cause GP removal scenarios, subscribe to Term Intelligence.}

Implications of ‘Not specified’ outcomes for carried interest treatment

Preqin Term Intelligence data shows that a large proportion of LPAs are silent in respect to how carry retention after GP removal is dealt with, whether with or without cause, denoted by ‘Not specified’ (Fig. 1). A lack of clear drafting means that GP carry retention will only be determined once removal is triggered. This ambiguity diminishes certainty for both LPs and GPs, potentially leading to extended negotiations and unpredictable outcomes. We believe precise and consistent LPA drafting is important to ensure that the economic results of GP removal – with or without cause – are clearly defined and reflect market expectations.

With cause rights of removal are universally present

In private equity and real estate funds across Europe and North America, more than 90% of LPAs grant LPs the right to remove the GP with cause, Preqin Term Intelligence shows (Fig. 2). Without cause removal provisions are less prevalent and show considerable disparity between regions and asset classes. In North American private equity funds, only 51% of LPAs contain a without cause removal right, indicating less uniformity and greater potential negotiation around this term. By contrast, European funds tend to have more consistent inclusion of without cause removal rights, especially in real estate, although figures are still lower than those for with-cause removal.

Fig. 2: Without cause removal provisions are less prevalent
GP removal provisions, with and without cause, Europe vs. North America

_{Source: Preqin Term Intelligence, as of February 2026}

Why clarity on carried interest after GP removal is important

Understanding how GP removal provisions – both with and without cause – and the associated treatment of carried interest differ across asset classes is critical for both GPs and LPs, particularly in the context of private equity and real estate funds. As fund terms continue to evolve, access to robust, timely data on removal rights and post-removal economic outcomes has become increasingly important. For fund managers, we believe benchmarking carried interest retention outcomes against market standards is important for maintaining credibility with investors and aligning with best governance practices, especially as investor scrutiny intensifies.

For investors, clear insight into prevailing terms can potentially enable more effective negotiations and help ensure that removal provisions carry meaningful economic consequences, especially in cases of misconduct. Legal teams facilitating fund documentation and negotiations also benefit from comprehensive visibility into how these provisions are structured and applied, reducing ambiguity and execution risk. As private equity and real estate continue to attract significant investor interest, reliable data on GP removal and carried interest terms can help foster effective governance, aligning expectations, and supporting durable, successful partnerships in the private markets landscape.

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_{The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin accepts no liability for any decisions taken in relation to the above.}