Changes

*Private equity funds generally invest in large companies with the intent to restructure and sell the firms for a gain. These investments usually entail the acquisition of private acquiring controlling interests in public companiesthrough stock purchases, but they may also involve acquiring controlling interests in private companies. In the case of the public company, funds oftentimes take the company private before the resale or new initial public offering. The process by which private companies through stock purchasesare brought to liquidity is similar sans the return from public to private. Private equity funds usually employ a long-term, hands-on approach to investment. *Venture Capital funds aim to invest in small to mediumhigh-size tech startups with high-growth potential in exchange for a stake in the company. Once the fund purchases a stake in the company, it also provides coaching and other services to the company in order to increase its chances of success. Similar to private equity funds, venture capital funds invest with a hands-on, long-term strategy with the eventual goal of a liquidity event, i.e. a(n) acquisition, merger, or initial public offering.*Hedge funds tend to focus on achieving high returns through risky, short-term investments that may come in the form of stocks, bonds, commodities, derivatives, and anything else that promises a quick gain. Accordingly, hedge funds tend not to adopt the same hands-on approach to investment that venture capital funds and private equity funds takedo.

Recall Here, we must reconsider the structure of a private investment fund. General partners are compensated for managing their private investment funds through management fees and carried interest. Management fees are consistently around 2 percent of a fund's assets under management and are paid regardless of the fund's performance. Carried interest, alternatively, serves to join the incentives of the general partners with the interests of the limited partners by providing performance based compensation for the general partners. When a private equity or hedge fund surpasses its hurdle rate of return, usually about 8 percent, the general partners will typically receive around 20 percent of the profits as compensation. The general partner in a venture capital fund, on the other hand, will consistently receive 20 percent of the profits as long as the limited partners have received at least as much in return as their contributed capital. This 20 percent, in combination with any other profit the general partner may receive from their own stake in the fund, is treated as a capital gain for tax purposes. The 2 percent management fee is treated as ordinary income for tax purposes. The maximum rate for a capital gains tax is 20 percent, compared to the maximum rate for an ordinary income tax of 39.6 percent.