The issue here is how the hedge fund managers are compensated for managing the hedge fund.
A group of investors invest funds into a hedge fund which makes investment in underlying securities. The investors treat the transaction as investment and are taxed on investment income (interest, dividends, capital gains, etc.) as if they made the investment themselves. No one is suggesting that be changed.
The hedge fund manager receives a “carried interest” in the fund as compensation for their services in raising money for investors and managing the investments. This carried interest is an allocation of the interest, dividends, and capital gains earned by the fund. What Trump is suggesting is that the compensation be taxed as ordinary income just like any other form of compensation for services rendered.
Trump is only suggesting removing this special break for the managers of the fund. The taxation of the investors would not change.
And managers sometimes get paid partially in stock options. It’s not a special break for hedge fund managers, it just sounds good for the low info populist voters.