Private Equity

Chasin’ Carry: Assessing the IRS’ § 1061 Proposed Regulations

(Source)   The world of private equity is fascinating. Larger-than-life firms pool immense amounts of capital from individual and institutional investors. Firms organize these pools into funds, secure leverage, and begin investing in, restructuring, and ultimately selling for profit, a variety of assets, like distressed businesses and real estate. In theory, numerous parties stand to share in the spoils. Should they successfully argue their case before the fund, asset owners can raise capital without navigating the burdensome processes of debt financing or issuing public shares. Moreover, the owners and their assets also benefit from the knowledge and management expertise accompanying the private capital. Of course, the fund’s investors stand to gain substantial returns on their investments. And the spoils are plenty: according to Bain and Company’s 2020 Global Private Equity Report, in 2019 total buyout value was $551 billion and total exit value amounted to $405 billion. What do the fund managers gain from all of this? In return for their services, fund managers are assigned interests in the investments’ ultimate profits. These interests are termed “carried interests,” or, more colloquially, “carry.” (The term stems from the practices of medieval merchants in Europe who were issued interests in the profits [read more]