Tax law
Tax law provides that when such managers take, as a fee, a portion of the gain realized in connection with the investments they manage, the manager's gain is afforded the same tax treatment as the client's gain. Thus, where the client realizes long-term capital gains, the manager's gain is a long-term capital gain—generally resulting in a lower tax rate for the manager than would be the case if the manager's income were not treated as a long-term capital gain. Under this treatment, the tax on a long-term gain does not depend on how investors and managers divide the gain.