Why are GP-led transactions considered more tax efficient for General Partners?

GP-led transactions are often considered more tax efficient for General Partners because they allow for the deferral of recognizing taxable income until a sale occurs. This is beneficial as it enables General Partners to manage the timing of their tax liabilities, effectively postponing them until the liquidity event happens when the actual cash flow is realized.

This deferred recognition of income is advantageous in the context of the cash-generating aspects of investments. It aligns the tax implications more closely with actual economic gains they experience, resulting in better management of cash flows and increased potential for reinvestment before tax liabilities are realized. This is important in private equity, where the objective often revolves around optimizing exits to maximize returns over a longer investment horizon.

The other options do not reflect the nuances of GP-led transactions accurately. General Partners cannot entirely avoid taxes or eliminate carried interest. While lower tax rates can apply, this often depends on specific conditions and does not apply universally without consideration of the investment structure and broader tax legislation.