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Strategies & Market Trends : Moomin Valley (formerly Troll-free Zone)
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To: RealMuLan who wrote (2769)3/10/2007 5:41:08 PM
From: Moominoid  Read Replies (1) of 2852
 
I had no idea that performance fees would be taxed at that low rate. Taxes for US hedge fund investors are usually quite high due to the active trading. It only makes sense that performance fee income is taxed as ordinary income.

I did a quick Google search and "carried interest" is the term used in the VC interest. They pay long term CGT rates on this only when the fund actually sells a company. So it is like they get in on the investors gains for a zero contribution of capital and receive 20% of the income as capital gains.

Applying the same logic to hedge funds, performance fees would be made up of long-run capital gains, short run capital gains, dividends, interest etc. It would make sense if these were then taxed at the appropriate rates. So hedge fund managers who trade a lot would pay higher rates.

It does makes sense though that the performance fee is a fee for professional services and not really a share in capital gains and other investment income.
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