Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
istockAnalyst.com – I’ve always been a fan of what are now called "alternative investments" and never really cared as much for "generic index style equities", although I have owned them of course. Property, commodities, gold and higher yield instruments were always more interesting to me once I began to understand how imbedded inflation really was in the modern world.
Now that I am retired and living on my money, my "business" is to generate income as a goal more important than capital gains. Increasingly I am working on the great divide between tax-deferred and taxable accounts in the US, now and for the future. Perhaps we should call them "totally taxable" and "partly taxable" accounts since every penny one takes out of the IRA or 401K is taxable while only gains and dividends and interest are taxable from the taxable accounts.
West Palm Beach (HedgeCo.net) – Carried interest legislation is being considered at the federal, state and local level, raising significant local and international tax issues.
Carried interests, which form an essential element of business in almost every section of the U.S. economy (real estate, private equity, hedge funds and health care), have been subject to significant legislative proposals over the last two years.
Most investment funds (hedge and equity) have a general partner (LLC or LP) which receives a management fee (2%) and a carried interest equal to a percentage (e.g., 20%) of economic income including realized capital gains.
Proposals to reform the taxation of carried interest started in January of 2007 with legislation introduced by Senator Levin (D-MI) that would recharacterize "carried interest" income as ordinary income.
During 2008 New York State proposed and New York City introduced legislation that would change the way carried interest is taxed.
President Obama’s Budget Blueprint released on February 26, 2009 includes a line item related to taxing carried interest as ordinary income.
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Hedge Funds Review – US hedge fund managers could be subject to higher personal taxes if changes to the taxation rules included in President Barack Obama’s 2010 budget proposal are adopted.
The budget proposal includes measures to treat carried interest as ordinary income as opposed to capital gains for tax purposes. That would raise taxes on income earned from performance and incentive fees from the current rate of 15% applicable to capital gains to over 39%.
Carried interest has been a sensitive topic in Washington for many years. Some politicians have argued that hedge funds and private equity groups have used the carried interest exemption to avoid paying their fair share of taxes.
The proposed change in tax rules could have a deep impact on the earnings of hedge fund managers. The compensation structure at many hedge fund companies puts the onus on performance and incentive fees as the principal source of income for the manager.
Bloomberg – Executives at buyout, venture-capital and hedge-fund firms will pay an estimated $24 billion more in taxes over nine years if President Barack Obama gets his way.
Obama’s 2010 budget proposal, released today, proposes raising taxes on the managers by treating carried interest, the portion of profits they take from successful investments, as ordinary income instead of capital gains. That change would boost the tax rate, starting in 2011, to 39.6 percent for most executives from the 15 percent they now pay.
The proposal applies to partnerships that receive a portion of the profits they make for their clients. It will likely reignite a debate begun in 2007 amid the biggest buyout boom in history, when firms including Blackstone Group LP and Och-Ziff Capital Management Group raised their profiles through public stock listings. While the House of Representatives approved the tax change that year, the measure wasn’t taken up by the Senate.
“Obama and his team are up for a fight here,” said George Teixeira, a managing director with accounting firm RSM McGladrey in New York. “They’re missing key components of what these industries do.”
The change could hurt funds’ abilities to hire and retain managers, Teixeira said. The majority of pay at hedge funds and private-equity firms is drawn from their share of clients’ profits, typically 20 percent of the gains.
“If they have an incentive to give, they can keep their talent,” he said. “If that’s not there, it’s going to be tough to keep people.”
Bloomberg - Philip Duff, Morgan Stanley’s former chief financial officer, last month fired 80 of the 100 people at his 11-month-old hedge fund, and now he’s looking to sublet excess office space in Greenwich, Connecticut.
Record losses and terminations at hedge funds like Duff Capital Advisors have reduced Connecticut’s tax revenue, and that means the city schools in Bridgeport, 25 miles north, may soon have less space. Facing an anticipated $12 million drop in state aid, Superintendent John Ramos says he may close some of his 35 schools.
Officials across the state face similar cuts. After income- tax-fueled surpluses that totaled $3.6 billion from 2004 through last year, Connecticut’s budget now has a $1.1 billion gap, according to state Comptroller Nancy Wyman. The deficit is forecast to grow by $6 billion by 2011. Quarterly taxes on bonuses and capital gains — which make up 40 percent of income tax collections — dropped 20 percent in one year to $568.2 million last month, Governor Jodi Rell said.
Los Angeles Times – Financial giants and other large firms now being bailed out by the government spent millions underwriting the Democratic and Republican conventions last summer, just weeks before coming to Washington seeking multibillion-dollar handouts.
The big donors included AIG, Ford Motor Co., Citigroup, Goldman Sachs and Freddie Mac.
In all, major corporations, labor unions and individual millionaires poured $118 million into the nominating conventions for Barack Obama and John McCain, according to reports from the Campaign Finance Institute and the Center for Responsive Politics. The nonpartisan private groups compiled the numbers from filings required under federal law.
Financial Times – The soaring egos of the very wealthy seem to be contaminating the spirit of philanthropy. Increasingly, public buildings, or parts of them, are being renamed after big donors whose gifts are made on condition that their names adorn the objects of their largesse. Whatever happened to anonymous giving?
The selling of New York City appears to be under way. A few months ago some of us were shocked to hear that the New York Public Library’s beautiful flagship building on Fifth Avenue was to become the Stephen A. Schwartzman Building, in honour of a manager of hedge funds who is contributing $100m towards a $1bn renovation of the library system.
The Stephen A. Schwartzman Building? You’ve got to be kidding. Unfortunately not.
Both the board of the New York Public Library and the city’s Landmark Preservation Commission hardly debated the issue. Money trumped tradition and the dignity of the building. The president of the library, Paul LeClerc, did offer some comfort to those disappointed by the name change. He promised the commission no other name wouldbe attached to the building.
