‘2 AND 20’ COMPENSATION
“Even if no profits are realized, private-equity firms get
paid:
under the ‘2
and 20’
compensation structure, they receive a two-per-cent fee annually on assets under
management, in addition to a twenty-per-cent cut of profits beyond a given
benchmark. The I.R.S. characterizes the managers’ cut of the profits as carried interest, taxing it as though it
were capital gains made through the sale of a person’s own investment. For most
of the past fifteen years, long-term capital gains have been taxed at fifteen per cent, compared with thirty-five per cent for
ordinary income in the top bracket.”
Alec MacGillis, “The Billionaires’ Loophole,” New Yorker,
March 14, 2016, pp: 64-73.
