Private Equity at Work: What is Carried Interest?

What is Carried Interest? Private equity is an important driver of economic growth in the US with firms investing hundreds of billions of dollars into the U.S. economy each year. However, there are a lot of misconceptions about the industry. This is a short whiteboard video about a commonly misunderstood aspect of private equity: carried interest.

[captainsanta]

The bit about Jen "contributing her expertise and sweat equity" is doing a lot of work here, and it *is* the sleight of hand of the carried interest loophole. Notice that Jen did not invest any capital into the business. She's running the business using Mary's money -- so Mary is the only one who risked capital and thus is the only one who should be able to treat any gains from that capital investment as capital gains. Jen was just entrusted with Mary's money to hopefully make the value of her investment grow. Jen's 20% equity is literally compensation for her work -- and compensation for work is generally considered ordinary income subject to earned income taxes like the rest of us (who work rather than invest capital--just like Jen) pay.

[hkrumble]

20% ownership stake in the business and 20% carried interest are two very different things.

[definitiveentertainment]

Why did you reiterate 3 times that carried interest is “correctly” taxed as Capital Gains??

Look down, your bias is showing.

[SP-fjoo]

This is nothing but a propaganda video to discourage carried interest from being treated income rather than capital gains

[PhrontDoor]

There's no reason not to tax the interest at the rate of income-tax. If LABOR is an important driver of economic growth, and if it's ok to tax labor in such a manner, then clearly there can be no rational defense to fail to tax private equity investments similarly.

[goldilockszone]

How much money did you receive from Private equity to make this spurious video ? Private equity take ZERO risk in the deal baby !

[Kevin]

This has to be a parody video. I laughed for 3 minutes straight.

[alexcipriani]

Private equity is a cancer on the real economy; we need to get rid of this industry now

[issacmba]

“Why is it an appropriately taxed as capital gains?” the that tells you everything about the video’s objectivity

[pubadubgthreemeninatree]

dang. and here i was thinking the carried interest loophole was a tool for hedgefunds to pay less in taxes. it's fairly taxed at a lower rate. fairly. says it right in the video. who knew

[gabrielacarrasco]

Wow they laid it on thick in this video

[jordanf]

0:50 This is wrong.
Yes, there is often a hurdle of 8%, but the GP will get a catch-up, meaning they will get the next 8% until both parties own 8% of the profits. Then, each dollar is split 80/20 GP/LP

[mattdathew]

capital gains should be only your cash u put at risk

[rdubitsk]

Didn't realize this would be a propaganda video supporting carried interest loophole. Please correctly title this. "Why carried interest is entitled to a tax loophole" Sweat equity comparison is a joke.

No detail on real calculations of carried interest.

[SejalPatelDrSej]

Lol this made no sense then when I read the comments I felt better...

[daveycrocker]

So its better to have lines drawn on my sleeve then not?

[alr]

Bob is a truck driver. His sweat equity is taxed as ordinary income. So stop with your BS. This is totally unfair. Carried interest is ordinary income.

[ThatGuy-hjxj]

I’m no expert but this didn’t seem right.

[jamespalmer]

Trump brought me here! Since he wants to get rid of it

[falcon_io]

Hahaha that was such a propaganda piece! If you didn't use the word "fairly" like 80 times I might have bought it.