In 2007, the chief executive officer of a large US private
equity fund racked up a bill of $3-5 million in throwing a lavish
60th birthday party. Some months later, two US senators introduced
a Bill, also referred to as the 'Birthday Party' Bill, with
respect to tax on carried interest ('carry') earned by fund
managers.
Ever since, carried interest has become a thorny issue that fund
managers in developed economies have been grappling with. (In
simple terms, carried interest is a general partner's share in
a fund's profits. This is paid over and above the management
fee.)
Given that a substantial number of private equity investments in
India were made during 2006-09, and which would be ripe for exits
in the near future resulting in potential carried interest
distributions to the fund managers, it is a suitable time to take a
relook at carried interest structures set up earlier by fund
managers focused on investing in India.
