Hedge Fund Tax Changes Cause Indigestion in Greenwich
The steaks and expensive Cabernet weren't going down so well at a private dinner in Greenwich last week, as 30 private-equity and hedge-fund managers tried to digest the implications of looming federal tax laws that could slash their take-home pay and force them to return money to investors.
Mark Lange of McKenna Long & Aldrige held the captive attention of over 30 fund executives that included heavyweights from JPMorgan’s Highbridge Energy, $6 billion private-equity firm Scions Capital, mutual fund Kinetics Asset Management, and the $100 billion-plus administrator of finance firms GlobalOp Financial Services.
"I think some guys left the room wanting to chuck the fine wine they’d just been served," said one hedge-fund lawyer who attended the private event at the Innis Arden Golf Club in Old Greenwich.
It wasn't the food or the wine: It's the uncertainty. The House has passed a bill that would treat carried interest — the share of a fund's income that is distributed to managers — like regular income, taxing it at far higher rates. The bill is currently with the Senate, which will probably water down that measure, but no one, including the the financiers of Greenwich, knows by how much.
The consequences could be ugly. If firms raised new money that they expected to book as carried-interest income down the road, they may need to beg their investors to restructure how they get paid or give them back their investment at a discount to promised returns. .......
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