Carried Interest Debate - Hairsplitting by Mankiw

Professor Mankiw admits that he is an adviser to Mitt Romney so one should not be surprised that he expends a considerable amount of energy confusing the straightforward case against a low tax on carried interest for private equity promoters with a variety of situations faced by hypothetical property investors. But the performance fee and basic management fee charged by private equity firms that predominately buy and sell existing assets can simply not be called a capital gain as there is no capital at risk. The exception is the portion of capital that has actually be invested by the managers of the pe firm. The rest simply is reward for putting in the effort to manage the fund. One problem we have to face is that the amount of this investment can easily be manipulated. Already, the insiders of the pe firms (promoters and senior management of the companies that the firms invest in) receive founder's shares (or options) at exceptionally favourable terms (something that would need closer attention by the 'limited partners', i.e. the investors who bear most if not all the costs and risks of the funds). Subsequently it can be claimed that the proceeds arising from the eventual sale of these shares (allocated at pennies) are a 'capital gain'. Maybe it would be a good idea for Professor Mankiw to let us know how he would prevent this abuse?