Investors Seeking to Alter Hedge-Fund Fees Backed by IRS
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The U.S. Internal Revenue Service issued a ruling yesterday clearing the way for institutional investors to seek changes to incentive fees assessed by hedge funds, which may make it cheaper for them to invest in such offerings.
The ruling, 2014-18, clarifies that hedge funds can charge incentive fees cumulatively rather than annually without running afoul of a tax law change adopted in 2008. These fees, typically equaling 15 percent to 20 percent of an investor’s profits, comprise a big portion of a hedge-fund manager’s annual revenue.