Monday, December 6, 2010

Carried Interest Break & Carlyle Group's 2012 IPO

EconomicPolicyJournal reported Senator Max Baucus (D-MT) blocked a provision taxing carried interest as ordinary income.  This is the fourth year in a row the U.S. Senate prevented a House move from becoming law. 

Sen. Max Baucus (D-Mont.) has dropped a provision in the contentious tax cut bill that would have more than doubled taxes on carried interest. Under a loophole in the tax laws, hedge and private equity fund managers pay only the capital gains rate on their share of a fund’s profit, rather than the ordinary income rate. The former is currently just 15%, the latter can be as high as 35%.
Will tax breaks last until early 2012, when The Carlyle Group plans an independent public offering?  Carlyle's 2010 Cash-in should make any 2011 filed S-1 look good. Bloomberg reported

Carlyle's clients, who received $1 billion in cash distributions in 2009, have already seen payouts increase to $5.7 billion 2010

And the year's not done, yet!  Carlyle keeps 20% of profits on any deal as carried interest.  That works out to $1.4 billion, based on Carlyle's payout.  Tax savings mean an extra $280 million in Carlyle's coffers.  How can they pay Max back?  Time will show.