In a sign that the alternative investments community fears it will not be able to scuttle new rules that would vastly inflate their tax bills, it has struck upon a new strategy to make the tax hike more palatable.
Lobbyists for private equity firms and hedge funds are pushing to double the length of the grace period contained in a Senate bill to 10 years. Under the proposed legislation sponsored by Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa), alts firms that go public will be subject to the corporate tax rate of as much as 35%, rather than the 15% capital-gains rate they pay as partnerships.
Further, the industry is pushing to extend the law to all hedge fund and private equity firms that go public. As currently written, the bill applies only to firms that have completed the initial public offerings or filed to do so before the bill was introduced on June 14. Only three firms-The Blackstone Group, Fortress Investment Group and Los Angeles hedge fund Oaktree Capital Management-would qualify under that provision.
"Our members’ position would be that all private equity firms should be treated equally," Doug Lowenstein, head of the Private Equity Council, said in an interview. Some private equity firms are reportedly saying that the rule as currently written would give Blackstone an unfair edge.