“That’s a big discussion point and it’s looked at two ways.”
Tom Angell, Practice leader of Withum’s Financial Services Group, discusses the differing views on carried interest as it relates to funds and whether the General Partner performance compensation from the fund should be considered a fee or a gain. Historically, there was the view that fund investments in portfolio companies were similar to buying a business (like an investment banking deal), that resulted in a transaction fee. However, more recently fund General Partners are more closely involved in the portfolio companies that are purchased. GPs often provide expert operational, logistical and marketing support to help grow and improve the performance of the business, to maximize fund gains when the portfolio company is ultimately sold, resulting in a capital gain Therefore the Carry should be considered capital rather than ordinary.
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