Tuesday, December 8, 2009

Carlyle Group's Chinese Christmas

It's a very Merry Christmas on Pennsylvania Avenue. The Carlyle Group has two Hong Kong IPO's slated for December. Both China Pacific Insurance and Concord Medical plan to issue shares on the Hong Kong exchange. Carlyle's investment in China Pacific is expected to generate a $4 billion profit for the politically connected, private equity underwriter (PEU).

Carlyle owns domestic insurance and health care firms similar to the two going public overseas. MultiPlan is a huge preferred provider organization, operating in the health insurance arena.

Profits from Carlyle's China Pacific investment could reach $4 billion (after a one year lockup). Gains would be distributed to investors and managers. Managers' investment profits are known as "carried interest." They're taxed at the capital gains rate, 15%.

The House Ways & Means Committee is currently examining "carried interest" taxation, looking to treat such profits as regular income. Private equity underwriters defeated such a move before. They unfurled their usual threat. It will cause capital flight to lower tax portions of the globe.

Few want to pay their way today, despite America's huge deficits. The race to the lowest global common denominator continues on worker pay/benefits, taxes and regulation. The power elite would have it no other way.

I believe Congress is filled with enough lackeys and club members to cover the PEU boys backside. Either that, or this is pure political theater, maybe a Nutcracker for public consumption. It won't be the first time Congress passed a law, where a workaround is already in place.