<P> In a hedge fund environment, carried interest is usually referred to as a "performance fee" and because it invests in liquid investments, it is often able to pay carried interest annually if the fund has generated a profit . They have historically centered on 20%, but have had greater variability than those of private equity funds . In extreme cases performance fees reach as high as 44% of a fund's profits but is usually between 15% and 20% . </P> <P> Carried interest is a share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership, specifically in alternative investments i.e., private equity and hedge funds . It is a performance fee rewarding the manager for enhancing performance . </P> <P> The origin of carried interest can be traced to the 16th century, when European ships were crossing to Asia and the Americas . The captain of the ship would take a 20% share of the profit from the carried goods, to pay for the transport and the risk of sailing over oceans . </P> <P> Historically, carried interest has served as the primary source of income for manager and firm in both private equity and hedge funds . Both private equity and hedge funds tended to have an annual management fee of 1% to 2% of committed capital per year; the management fee is to cover the costs of investing and managing the fund . Some have suggested the management fee in hedge funds should be treated as ordinary income rather than capital gains which is treated at a lower tax rate . As the sizes of both private equity and hedge funds have increased, management fees have become a more meaningful portion of the value proposition for fund managers as evidenced by the 2007 initial public offering of the Blackstone Group . </P>

What is carried interest in oil and gas