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Carried interest

Structure of a private equity or hedge fund, which shows the carried interest and management fee received by the fund's investment managers. The general partner is the financial entity used to control and manage the fund, while the limited partners are the individual investors. The investment managers work as the general partner and are also a partner in the limited partnership. Limited partners collect their return on their capital interest.[1][2]

Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager specifically in alternative investments (private equity and hedge funds). It is a performance fee, rewarding the manager for enhancing performance.[3] Since these fees are generally not taxed as normal income, some believe that the structure unfairly takes advantage of favorable tax treatment, e.g. in the United States.[4]

  1. ^ Fleischer, Victor (2008). "Two and Twenty: Taxing Partnership Profits in Private Equity Funds". New York University Law Review. SSRN 892440.
  2. ^ Batchelder, Lily. "Business Taxation: What is carried interest and how should it be taxed?". Tax Policy Center. Retrieved 5 March 2014.
  3. ^ Lemke, Lins, Hoenig and Rube, Hedge Funds and Other Private Funds: Regulation and Compliance, §13:20 (Thomson West, 2013–2014 ed.).
  4. ^ Cite error: The named reference corpfininst was invoked but never defined (see the help page).

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