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Bailey McCann, Opalesque New York:

Incentive fees - a long time hot topic between investors and managers may be getting an update courtesy of the IRS. The IRS recently ruled that private fund managers can structure their incentive fees to provide a multi-year fee instead of an annual fee. The ruling is notable because it could help managers during their early fundraising years, but it may also help institutional investors grind down fees more.

"I think this could be an opportunity in the end for managers to work with investors on how fees are handled," Tim Selby, Partner at Alston & Bird tells Opalesque. Selby is also the President and Director of the Hedge Fund Roundtable.

The ruling specifically removes some of the uncertainty surrounding stock appreciation rights (SAR), which previously kept investors from supporting multi-year arrangements. In 2008, tax law was changed to remove the ability of investment managers to offshore compensation in Cayman based vehicles in order to avoid income tax. Some managers have continued to do this with a clawback allowance that makes it possible.

With a multi-year arrangement, the performance requirements that might trigger a clawback provision if not met, require managers to do well over the life of the fund instead of in a given year. This is a boon for institutions who are long term investors, but could be tricker for managers hoping to avoid taxation but may also have a bad year.

Still, there may be additional ......................

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