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In Halacha, is carried interest prohibited as ribbit?

For instance say Jew 1 owns an investment management fund, and Jew 2 goes to him, pays for the value of the profit from the stock trading and in exchange for managing the stocks in the fund Jew 1 gets 10% of the profit as a commission. Would this be prohibited as Ribbit?

Sources for the Halacha regarding this would be appreciated.

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    I'm pretty sure it isn't because the money hasn't been lent - it has been invested. I think it is like a partnership where splitting the profits is allowed. Jan 7 at 17:46
  • The correct term would be carried interest
    – zunior
    Jan 7 at 20:26
  • Ribbit applies to loans and interest on these loans. Here I see investments and profits so ribbit would not apply. This being said what do you mean by "Jew 2 goes to him and pays for the value of the profit from the stock trading"? Do you mean that Jew 2 invests money with Jew 1 who will manage the money on Jew 2's behalf?
    – mbloch
    Jan 10 at 7:18
  • Carried interest is typically practiced by venture capital firms, in these the clients do not loan the money, they invest it. Meaning if the investments are not successful, the fund is not returning any of the money (unlike a traditional loan). Because of the investment/risk involved, the halachot of ribbit do not apply. This is why the typical workaround around ribbit is to convert a loan into a (nearly fictious) investment
    – mbloch
    Jan 10 at 7:22

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As you clarified in the comments, you are describing a scenario where Reuven invests money with Shimon to invest in the stock market, and are asking whether there is a ribbit issue if Shimon keeps a part of the profit before returning the rest to Reuven.

R Yisroel Reisman writes (in his book The laws of ribbis, p. 299) there is no issue of ribbit in your case.

When one partner invests funds and the other manages the business, this is known as an Iska partnership [and not subject to ribbit ...] When one partner invests more funds than the other, the original agreement should stipulate clearly how the profits are to be divided. The agreement may call for profits to be divided by a percentage [...]

This principle is the basis for the heter iska which helps structure some loans as investments and avoid the prohibition of ribbit.

Note also that there is no restriction of ribbit in loans/investments with non-Jews. As such most investments in public venture capital/private equity funds do not have these issues.

These are very complicated issues where small details matter. Anyone considering doing this in real life should consult a knowledgeable rabbi.

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