Carried Interest in Hedge Funds: Performance-Based Compensation
Carried interest in hedge funds refers to the portion of profits that fund managers receive as performance-based compensation within the United States. This incentive structure aligns managers' interests with those of investors. Typically, carried interest represents a percentage of the fund's gains, often 20%, distributed after certain performance benchmarks are achieved. The tax treatment of carried interest, often taxed at capital gains rates, has been a subject of ongoing debate. This compensation model aims to incentivize fund managers to generate superior returns.
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