election

Could US Election Impact PE? Asks PEI

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November 9, 2012

A feature article by a US-based correspondent for PEI says the answer to the question how could the US Election change private equity is “yes”, and it offers five areas to watch in the coming years. The question comes up as a result of media spotlight thrown on PE during the election campaigns in light of Mitt Romney’s Bain Capital background.

CHANGES TO THE TAX TREATMENT OF CARRIED INTEREST
Democrats may have gained public support and the confidence to tax carried interest at a higher rate if tax reforms are undertaken by the US congress.

CHANGES TO THE TAX TREATMENT OF DEBT
Obama announced plans to limit the deductibility of interest payments made by corporations, which could be “bad news” for private equity investors, says the article because the new tax liability costs would eat into returns.

A MORE INTELLIGENT DEBATE ABOUT JOB CREATION
The controversy over claims by Mitt Romney about PE’s contribution to employment growth encouraged the industry to get some positive messages out about its jobs record. The PEI articles cites only one example of a new source of statistics, the PEGCC (Private Equity Growth Capital Council) which is a US-based advocacy group for the PE industry.

A MORE ACTIVE ROLE FOR BIG LPS
During the election several big name limited partners came to the defense of private equity, describing how its returns outperform other types of investments which benefits all kinds of pension funds and endowments. This endorsement had a “great effect”, according to PEI. The hope is that more of the larger LPs will speak out on behalf of the industry in the coming years.

MORE (AND BIGGER) POLITICAL DONATIONS
The 2012 election opened the door for private equity to give. Changes in political donation regulation encouraged PE executives to who in some cases donated as much as USD 1 million to the political action committes (PACs). Some of the Romney-friendly PACs raised more than USD 9.6 million from individuals employed by private equity or venture capital firms like Sun Capital, Bain Capital and Kohlberg Kravis Roberts. PEI says expect more generous support for friendly politicians in the future.

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