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Types Now to discuss the elephant in the room, carried interest. General partners of private investment funds include private equity the fundsare compensated through management fees, venture capital fundscarried interest, andwhatever stake they might have in the fund (typically no more than 5 percent). Management fees are consistently around 2 percent of a fund's assets under management and are paid regardless of the fund's performance. Carried interest, of coursealternatively, hedge-funds. What are is a contractual right for the differences between all general partner to receive about 20 percent of these funds? See the McNair Centerfund's [http:profits<ref name="fleischer" />. The controversy stems from carried interest's tax treatment as it faces a maximum capital gains rate tax of 20 percent<ref name = "bell" /128>, compared to the maximum ordinary income tax rate of 39.426 percent<ref name = "taxbracket" />.44 serves to join the incentives of the general partners with the interests of the limited partners by providing performance-based compensation for the general partners.180/wiki/Carried_Interest_Debate wiki page] for a more in-depth lookThe standard carried
Carried Interest Debate (Blog Post) (view source)
Revision as of 15:35, 10 June 2016
, 15:35, 10 June 2016no edit summary
First, let's clear one thing up. When Donald Trump and Hillary Clinton rally against "hedge-funds" for paying so little tax <ref name = "hillald" />, they are actually referring to private investment funds in general. In short, a private investment fund invests capital in order to achieve returns for investors. It is that simple; although, the types of funds, means through which capital is raised for the funds, how the capital is invested, where the profits are distributed, etc... can complicate the situation.
Before considering the aforementioned complications, one must understand the basic structure of a private investment fund. These funds, set up as limited partnerships or limited liability companies, are organized under general partners and limited partners. The general partners are the funds' managers or managing firms, while the limited partners are the funds' investors. These investors are typically made up of financial institutions, pension funds, and wealthy individuals. Types of private investment funds include private equity funds, venture capital funds, and, of course, hedge-funds. What are the differences between all of these funds? See the McNair Center's [http://128.42.44.180/wiki/Carried_Interest_Debate wiki page on carried interest] for an in-depth explanation.
==References==
<references>
<ref name = "hillald">[http://www.bloomberg.com/politics/articles/2015-09-29/trump-clinton-lines-on-hedge-fund-tax-payments-puzzle-experts] R. Rubin, 'Trump, Clinton Lines on Hedge Fund Tax Payments Puzzle Experts', ''Bloomberg'', (New York City: September 2015) </ref>
<ref name="fleischer">[http://victorfleischer.com/wp-content/uploads/2009/12/Two-and-Twenty.pdf] 'Two and Twenty: Taxing Partnership Profits in Private Equity Funds',''New York University Law Review'', (New York City: April 2008) </ref>
<ref name = "bell">[http://www.bankrate.com/finance/taxes/capital-gains-tax-rates-1.aspx] K. Bell, 'A look at long-term capital gains tax rates', ''Bankrate.com'', (New York City: April 2016) </ref>
<ref name = "taxbracket">[http://taxfoundation.org/article/2016-tax-brackets] K.Pomerleau, '2016 Tax Brackets', ''Tax Foundation'', (Washington D.C.: October 2015) </ref>
</references>
