How Should a Crypto Fund handle Carried Interests?
Disclaimer How Should a Crypto Fund handle Carried Interests? In 2017, the law applicable to carried interests was changed so that GPs didn’t get long term capital gain unless the underlying asset had been held for 3 years (instead of one year). In addition, it was recently proposed that such holding period should be increased to 5 years and measured from the later of the date the fund was substantially invested and the date the asset was acquired. That proposal does not look like it will become law soon, but it will likely continue to be a part of future proposals. So what can a fund do to minimize the tax paid by its GPs? One solution is to never sell an asset that has less than a three year holding period. That might work for VC funds or PE funds, but it doesn’t work for funds that need to sell assets to fund redemptions or for funds that continually rebalance their portfolio. In that case, even if 20% of the...