John Steele Gordon on the Carried Interest Loophole

The always-worth-reading John Steele Gordon, on the absurdity of the carried-interest tax loophole (which mainly benefits hedge-fund managers):

<http://online.wsj.com/article/SB10001424127887323415304578370910199546982.html?mod=ITP_opinion_0>

He also describes a bit of the way hedge fund managers are paid.  What isn’t mentioned is that the investors themselves are often getting fleeced, too.  Recently we’ve seen how some of these funds end up in the hand of more regular investors – certain companies take those already outrageously expensive hedge funds (see the article re: “2 and 20”) and wrap them up in other business entities (i.e., trusts or partnerships), charge additional fees for the wrapper (as much as another percent or two) and then sell shares of them to investors (while getting sales fees and/or other incentives as well).  In the end, an investor may be paying as much as 4%/yr in fees.

It’s not clear that anyone wins the hedge fund game except for the hedge fund managers and the banks which wrap and/or sell or distribute them to unsuspecting investors.
(By the way, Gordon’s book “”An Empire of Wealth: The Epic History of American Economic Power” was absolutely excellent.)

 

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