> I'm more interested in this phenomena with hedge funds treating short term cap gains as long term. I think what GP means is, your fund has some trading profi

> I'm more interested in this phenomena with hedge funds treating short term cap gains as long term. I think what GP means is, your fund has some trading profits, which if an individual did the same trades would be taxed as earned income or short term gains, but the fund actually doesn't have profits or pay taxes at all - it's a pass through entity. You, as an individual investor in the fund, pay taxes (long term or short term cap gains as appropriate) when you exit your investment in the fund. This is a pretty reasonable way for capital gains taxes to work. The secret sauce successful hedge funds have is not access to this tax optimization, but some way to actually generate those trading profits in the first place.