Need To Know

California Could Curb Funds

Legislation proposed in California could make it more difficult for buyout firms to raise funds in the state, the newsletter Private Equity Insider reported April 14.

has hired a Sacramento lobbying firm, California Strategies, to argue its case with the California State Assembly, the newsletter reported.The bill, introduced in February by Assemblyman Ed Hernandez, is designed primarily to impose the same rules on placement agents that apply to lobbyists and would prevent those marketers from taking commissions on the commitments that they line up with state agencies such as the giant CalPERS.But the proposal also would apparently apply the same rules to buyout firms’ in-house marketing staff, if those workers spend less than a third of their time managing assets. That in turn would leave the firms unable to pay employees based on the sizes of the commitments that the workers land from California pension systems.

The U.S. Senate, pressed for politically palatable ways to raise revenue, may be willing to consider taxing carried interest of private equity firms and hedge funds as ordinary income rather than capital gains, Reuters (publisher of Buyouts) reported on April 13.

Sen. Charles Schumer, a New York Democrat who has previously opposed changes to carried interest, told reporters that the change was “on the table” for debate.

The House of Representatives passed a tax bill in December that would require fund managers to pay taxes at ordinary-income rates of as much as 36 percent for income earned as a part of services provided for clients. Investment activity that uses the manager’s own funds would continue to be taxed as capital gains, currently 15 percent. Action on this bill is still pending in the senate.

Blackstone Offers LPs Bigger Slice Of Fees

The Blackstone Group LP is offering to give limited partners 65 percent of transaction fees in its new mega-fund, rather than its customary 50 percent, The Wall Street Journal reported April 13 in its Private Equity Beat blog.

The New York firm has raised about $9 billion for the new fund, Blackstone Capital Partners VI LP, and is planning to raise as much as $15 billion by the time of the fund’s planned close on June 30. Some investors, speaking anonymously, suggested the firm might have to sweeten its terms further to achieve its target, according to the blog.

The firm’s predecessor fund, Blackstone Capital Partners V LP, raised $21.7 billion in 2007. The Institutional Limited Partners Association, which has more than 230 members, proposed last September that LPs should receive 100 percent of transaction fees.