Although general partners of private equity funds are often well intentioned when drafting waterfalls in fund documents, they can occasionally be overzealous about securing early cash distributions. To protect against this risk, most limited partners insist on a carried interest clawback mechanism that allows them to reshuffle cash disbursements at the end of the fund’s term to accurately reflect the fund’s economics. This feature can greatly complicate a fund’s waterfall, however, as well as the tax treatment of the fund. Strafford CLE Webinars hosted a recent webinar presented by Kirkland & Ellis partners David H. Stults and Aalok Virmani that addressed some of these issues. This second article in a two-part series evaluates carried interest clawbacks at length, including the impact of different features and some of the tax considerations that they invoke. The first article analyzed how different styles and permutations of waterfalls can shift the balance between partners’ competing interests and objectives. For additional insights from Kirkland & Ellis, see “The Power of ‘No’: SEC Commissioner Peirce on Enforcement As Last Resort” (Jun. 21, 2019); and our two-part series: “Understanding the CFIUS Review Process and How to Structure Investments to Minimize Regulatory Risk” (Apr. 2, 2019); and “FIRRMA Expands the Scope of Transactions Subject to CFIUS and Lengthens the Target Acquisition Timeline” (Apr. 9, 2019).