Capital Absorption Risk · Sponsor and manager economics
Carried Interest and General Partner Promotes (GP)
Definition
A share of a deal's profits, often 20 percent after investors receive their capital and a preferred return, paid to the sponsor or general partner beyond its own invested capital, which reduces what flows to the other investors. Gains on a partnership interest held in connection with performing substantial investment services are treated as short-term capital gain unless held more than three years[1].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
- Tax Cuts and Jobs Act (popular name), Pub. L. 115-97, § 13309, 131 Stat. 2130. Imposed a three-year holding period for long-term capital gain on applicable partnership interests held in connection with investment services (26 U.S.C. § 1061). Official text: govinfo.gov, U.S. Government Publishing Office.