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The ownership of carried interest by managers of private equity funds, venture capital firms and hedge funds presents unique wealth transfer opportunities. Carried interest provides the potential to leverage gifts to younger generations at a low gift tax cost—but also poses some complications that can present challenges if applicable rules aren’t navigated carefully.

How is carried interest typically structured? 

A manager of an investment fund often has an economic interest in the fund known as a carried interest. This carried interest is commonly a 20% allocation of the fund’s profits or gains. Frequently, this is in addition to the 2% asset management fee earned by the fund’s management company (together with the carried interest, this creates the fee structure commonly referred to as the 2 and 20 arrangement). Funds are typically organized as limited partnerships, with the carried interest allocated to the general partner (GP) entity. It is the manager’s ownership of a portion of the GP that entitles the manager to a share of the carried interest.

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Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.

No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.

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