Our CEO, Rami Cassis, recently wrote an article for Private Equity International arguing that the PE industry should welcome the taxing of carried interest as income, treating the reform as a prompt for GPs to increase their personal capital in their portfolios.
Ahead of the UK’s October Budget, the government is consulting on whether to tax carried interest as income rather than a capital gain. The proposal has been met with warnings from parts of the sector that it will trigger an exodus of dealmakers from London.
The debate has pushed the question of whether GPs genuinely put their own capital at risk to the front of the industry conversation, with most GPs only committing around 1% of their own money in their investments. Rami argues that a commitment at that level is difficult to defend when the resulting returns are taxed as though the manager were a true owner.
He also argues that managers who commit meaningful personal capital to their funds have little to fear from the reform and can build trust with people outside of the sector, such as regulators and politicians. A clear public distinction between those with skin in the game and those without would work in the industry’s favour, not against it.
Rather than resisting the change, the industry should treat it as a reason to up personal investments. This change would tie manager rewards far more closely to genuine value creation than to financial engineering.
Read the full article at Private Equity International here.
Featured image courtesy of Nick Brunner via Unsplash.
