In other words, the longer than 1-year holding period, the return of 100% of the initial capital to the limited partners, and the full and equal risk that managers take alongside their limited partners (plus it is common for the managers to put some of their own money into the fund) all justify carried interest treatment as a capital gain.

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My worst investment was a global technology fund that actually resulted in around a 400% rate of return with just around a one year holding period.

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Holding for the full 180-day period saw a 12% return.

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Their goal: a 20% annual return on each stock over a three- to five-year holding period.

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