http://online.wsj.com/article/SB118463122029268294.html?mod=rss_Deals_and_Deal_Makers
(subscription req. I think)
Private Equity firms are good at looking for value (they want to invest in assets that others have undervalued for whatever reason...). But in Congress, buying a stock (or a Committee ranking member) when it is down doesn't work all that well. In Congress, you pay for growth (and yes, if majorities switch, you get caught with a lot of useless friends...but investors need long time horizons. Lobbying is all about making quick moves with money (and other assets) to make tactical moves. So maybe the investing industry should leave the lobbying to the hedge funds...
I am not convinced that the study is methodologically appropriate, btw -- they are comparing presidential fundraising and congressional fund raising, which is problematic. But if it is true, it also illuminates a further problem with the industry's position on the tax status of carried interest -- the industry would like everyone to just stop talking about this so they can go back to doing what they do best. But politicians are naturally advocates and activists (even conservatives) -- it is hard to lobby them (even if they are your natural allies) to keep their mouths shut...
Tuesday, July 17, 2007
Friday, July 13, 2007
Hillary Comes Out...for Taxing Carry as Income
http://www.hillaryclinton.com/news/release/view/?id=2396
The "Don't get me wrong..." line can be read as "Please don't cancel your fundraiser, Mr. Rattner"...
Seriously, though, I am surprised by the speed with which a consensus has emerged on this. Some of that is probably due to the relative incompetence/naivete with which the industry has approached the political process. (Sending Mr. Kravis up to the Hill is not having the intended effect...)
An underlying factor may be the weakening of the alliance between high finance and the Republican party. The PE industry doesn't have friends in Republican party like they used to.
What's amazing is that a cursory review of Mitt.com reveals no effort from the Republican party's official spokesman for this guy (and him, and him) to defend the current tax policy. I remember a time (*sniff*) when the 'publicans would be crawling all over one another for a shot at declaring Democrats as "for a Tax Increase" - but not a peep from The Haircut. Or the Non-Haircut either.
All of that having been said, I still don't think it becomes law. I suppose I could see it passing the Congress, being vetoed and failing to make the 2/3 - but even that seems unlikely. For one thing, Chuck has already made his concerns clear. And there are a lot of Democrats who will do fundraisers in the PE and IM industry as election day approaches, and too many ways for the Senate to scuttle it. (Btw: Committee Chairman Dodd has been surprisingly quiet on the issue...thankfully, Chairman Baucus looks forward to a spirited discussion...)
But the industry's relatively weak PR skills, and the de minimus $ at stake (HC says $4-$6 billion, or .2% of federal spending) makes it an ideal summer punching bag for presidential candidates...
ps - The title was not intended to drive traffic from those seeking more prurient HRC stories...but I'll take it!
The "Don't get me wrong..." line can be read as "Please don't cancel your fundraiser, Mr. Rattner"...
Seriously, though, I am surprised by the speed with which a consensus has emerged on this. Some of that is probably due to the relative incompetence/naivete with which the industry has approached the political process. (Sending Mr. Kravis up to the Hill is not having the intended effect...)
An underlying factor may be the weakening of the alliance between high finance and the Republican party. The PE industry doesn't have friends in Republican party like they used to.
What's amazing is that a cursory review of Mitt.com reveals no effort from the Republican party's official spokesman for this guy (and him, and him) to defend the current tax policy. I remember a time (*sniff*) when the 'publicans would be crawling all over one another for a shot at declaring Democrats as "for a Tax Increase" - but not a peep from The Haircut. Or the Non-Haircut either.
All of that having been said, I still don't think it becomes law. I suppose I could see it passing the Congress, being vetoed and failing to make the 2/3 - but even that seems unlikely. For one thing, Chuck has already made his concerns clear. And there are a lot of Democrats who will do fundraisers in the PE and IM industry as election day approaches, and too many ways for the Senate to scuttle it. (Btw: Committee Chairman Dodd has been surprisingly quiet on the issue...thankfully, Chairman Baucus looks forward to a spirited discussion...)
But the industry's relatively weak PR skills, and the de minimus $ at stake (HC says $4-$6 billion, or .2% of federal spending) makes it an ideal summer punching bag for presidential candidates...
ps - The title was not intended to drive traffic from those seeking more prurient HRC stories...but I'll take it!
Disclaimers! (Part 2 of...)
One more key disclaimer:
NONE of the opinions contained herein are those of my employer or any of its clients. They are mine, and are prepared in a nonprofessional capacity. So there.
NONE of the opinions contained herein are those of my employer or any of its clients. They are mine, and are prepared in a nonprofessional capacity. So there.
Low-brow financial humor
"Steve, you aren't making the job of our lobbyists any easier..."
http://dealbook.blogs.nytimes.com/2007/07/13/tax-loopholes-sweeten-a-deal-for-blackstone/
This is part of why I've taken to advising Mrs. Blunt to relax about the so-called "threat" to carried interest posed by the proposed change in tax law. As we speak, these guys (and these, and these) are I'm sure thinking up ways to avoid the hit.
Conceptually (and this is a good time for the disclaimer) you could structure your partnership agreement with tiered equity, in which general partners (& staff) put up some capital and in return receive a share of the carry. It would appear to be capital gains, as financial capital is at risk. For instance, a mild-mannered young associate could put up $1000 (held in escrow? loaned to her by the firm?), and should the firm lose capital, she would lose the stake. But when carried interest is distributed to the firm's partners and staff, the ratio of return for that $1000 could be far in excess of that offered to limited partners. This is just one idea, but it essentially reflects the tax treatment of options (partnership shares would function a bit like Incentive Stock Options in that case).
This is part of why I've taken to advising Mrs. Blunt to relax about the so-called "threat" to carried interest posed by the proposed change in tax law. As we speak, these guys (and these, and these) are I'm sure thinking up ways to avoid the hit.
Conceptually (and this is a good time for the disclaimer) you could structure your partnership agreement with tiered equity, in which general partners (& staff) put up some capital and in return receive a share of the carry. It would appear to be capital gains, as financial capital is at risk. For instance, a mild-mannered young associate could put up $1000 (held in escrow? loaned to her by the firm?), and should the firm lose capital, she would lose the stake. But when carried interest is distributed to the firm's partners and staff, the ratio of return for that $1000 could be far in excess of that offered to limited partners. This is just one idea, but it essentially reflects the tax treatment of options (partnership shares would function a bit like Incentive Stock Options in that case).
Disclaimers! (Part 1 of...)
As mentioned, I am not an attorney. Anything on this blog that sounds like legal advice is not, and if you follow it as legal advice, then you (& you alone) bear the risk that it is in fact bad advice.
As also mentioned, I am not a financial adviser. I don't have a series 7, nor a CFA, nor do I have one of those wierd designations that guys put on their shingle that supposedly equip them for managing other peoples' money. If you want financial advice from such a person, please pay for it (or alternately, read David Swensen's book and buy index funds...).
The beautiful & talented Mrs. Blunt is an employee of a never-to-be-named private investment company. I will not reveal any company- or strategy-specific information relating to her work (or my own for that matter). Sometimes the opinions I offer will be in our own financial interest at an abstract level (e.g., I may make an argument for a regulation that, if implemented, would result in a financial benefit to me - or the reverse. Hopefully these occurrences are as common as the inverse phenomenon. If not, feel free to call me on it.
I will try to provide analyses of data that support the arguments I make where possible. In so doing, I may use data that is not publicly available. I cannot always make the underlying data available (sorry). I'll try to make it clear when that is the case. When I can, I am happy to share it (or point to the source...)
I'm sure I'll think of more.
As also mentioned, I am not a financial adviser. I don't have a series 7, nor a CFA, nor do I have one of those wierd designations that guys put on their shingle that supposedly equip them for managing other peoples' money. If you want financial advice from such a person, please pay for it (or alternately, read David Swensen's book and buy index funds...).
The beautiful & talented Mrs. Blunt is an employee of a never-to-be-named private investment company. I will not reveal any company- or strategy-specific information relating to her work (or my own for that matter). Sometimes the opinions I offer will be in our own financial interest at an abstract level (e.g., I may make an argument for a regulation that, if implemented, would result in a financial benefit to me - or the reverse. Hopefully these occurrences are as common as the inverse phenomenon. If not, feel free to call me on it.
I will try to provide analyses of data that support the arguments I make where possible. In so doing, I may use data that is not publicly available. I cannot always make the underlying data available (sorry). I'll try to make it clear when that is the case. When I can, I am happy to share it (or point to the source...)
I'm sure I'll think of more.
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