By using FAR®s, managers accumulate capital at the pre-tax return of the fund. The FAR®s can be designed to crystallize each year, and to replicate the profit compounding benefit of the current model. Last, FARs enable the manager to use deferred compensation to attract and retain top talent.

Retention of Key Alpha Generators

Deferred compensation is a proven way to attract and retain traders, portfolio managers, and other key alpha generators. But few managers use it. If the manager does not defer the receipt of its compensation, the partners would incur a tax cost if the manager provided deferred compensation to its service providers.

Managers that receive FAR®s can provide deferred compensation to key alpha generators without tax cost. By providing employees with long-term incentives, the manager can offer true alignment of interests to institutional investors.