Is Anger At The Private Equity Industry Really Justified?
from the black-stone dept
Ever since private equity firm Blackstone came public earlier this year, there's been a strong backlash against the entire industry. Congress is looking to close a tax loophole that effects both private equity and VC firms, prompting some venture capitalists to lash out against private equity executives for drawing political scrutiny and potentially ending the party. But as Andrew Ross Sorkin points out, all of this outrage pointed at the industry (and Blackstone chief Stephen Schwarzman specifically) is a bit overdone. Plenty of executives could accused of having a big ego or of throwing big, garrulous parties in their own honor, as Schwarzman has done. Ultimately, it was the company's IPO that served as the catalyst for the outrage, so Blackstone, simply by virtue of being first to go public, has borne the brunt of it all. That being said, if things start to deteriorate economically, expect even more outrage at any executive perceived as having cashed out at the top.
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Filed Under: private equity, vc
Companies: blackstone
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That's why they're mad - because the nature of the party became public?
I really hate it when people are picked on like that, don't you? Poor picked on guys. My heart bleeds for them. Screw them.
AC #1 is right - it's about the taxes.
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Now, granted, the damn banks bear most of the blame for lowering the credit ratings, but everyone involved shoulders a little bit of the responsibility, right down to the sub-prime borrower who asked for credit when they couldn't meet it.
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This last year marked the first year I earned a six-figure income, and I have never in my life paid as much in taxes, as a percentage of salary, than I did this last year.
Do I just have crappy accountants? Or do these guys have loopholes they pry open only when it's 7,8, or 9 figures?
If I was making a lot LOT of money, I'd be happy to pay the 20-30% tax most others pay, but seeing as how I currently only keep .63 cents of every dollar in salary, it's gives me a headache to think about paying that kind of tax rate if it was ever in the millions and millions of dollars going to our government who provides crappy health care and a retirement system that's not even going to be there when I retire.
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The fund managers make money both by taking a fee percentage of managed assets, and by taking a cut (usually 20%) of any profits the fund makes. The fee income is ordinary income, and taxed accordingly (after all the deductions and write-offs that come from a business and expensive accountants). The profits come from selling stock that has appreciated. If the fund held that stock for over a year, which is usually the case with private equity, then it is taxed at the capital gains rate of 15%.
So Jon, if you had made that six figure income by selling assets, you would be taxed at that rate too.
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No one asked you to buy
Blackstone's business is based on tax arbitrage - leveraged buy-outs have always been based on tax arbitrage.
Blackstone is a deal driven business, the insiders still have the overwhelming majority of shares and the whole thing looks like a conflict time bomb waiting to explode on all of the shareholders.
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Bogus alert
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