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By Alicia McElhaney
Thom Young has spent the better part of the past 13 years trying to
better align the financial interests of investment managers and asset
owners.
The former hedge fund manager and consultant is now president at
FARCapital, which helps investment managers implement fund
alignment rights - an options structure to use in lieu of annual
incentive fees.
"I'm trying to get to a level playing field where everyone is aligned,"
Young said in an interview. "The manager can earn even more money
for long-term performance. The LPs get the skin in the game, and
everyone is better off for long-term performance."
The problem: Finding a manager and an allocator to take a chance on
this new structure. Young and his team have faced several obstacles so far, including an IRS ruling process interrupted by a government shut
down and a last-minute pullout from a public pension fund. But they
have now found a willing manager: a new investment firm founded by
ex-Invesco employees.
First, though, a primer on fund alignment rights. In a typical fund
structure, managers pull carry - or incentive fees - out on an annual
basis, selling assets in the process. That money is distributed to
employees and taxed. For managers who hold assets for less than
three years, which is the case for many active investors, this capital is
taxed at ordinary rates.
A fund alignment right - or FAR - structure operates differently.
Rather than managers pulling carry out of a fund each ye...................... To view our full article Click here
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