Need To Know

Morgan Pitching The Public Route

Morgan Stanley has approached buyout firm Golden Gate Capital to pitch the idea of an initial public offering at the general partnership level, said outgoing Golden Gate Managing Director Jesse Rogers.

Rogers, speaking last month in a keynote interview at the Buyouts West conference in San Francisco, said Golden Gate declined the offer in part because such a move would not mesh with the firm’s overall strategy as a long-term investor.

However, the pitch to Golden Gate, as well as comments later made by Mark Bradley, the global head of Morgan Stanley’s Sponsors Coverage Group—who was serving as the keynote interviewer for Rogers—suggest that Morgan Stanley is actively soliciting other buyout firms with the same idea. The discussion of the pros and cons of firms taking themselves public is a seminal topic, Bradley said during the keynote.

Later, referring to the S-1 filings of Kohlberg Kravis Roberts & Co. and Apollo Management, Bradley said, “Trust me when I say there is more of that coming.”

Carried Interest Tax Boost More Likely

Sen. Max Baucus, Democrat of Montana and Chairman of the Senate Finance Committee, has suggested that the Senate is more open than ever to changing the tax treatment of carried interest to the higher earned-income rate from the capital-gains rate, which is 15 percent. “I’ve asked my staff to look at alternatives…Carried interest will probably be part of the offsets,” Baucus told Politico on April 26. “We’re thinking of putting it on later as part of tax reform.” Meanwhile, Chuck Schumer, Democrat of New York, who previously opposed the change, has also said carried interest is on the table, as Buyouts previously reported.

The House of Representatives passed a tax bill in December that would require fund managers to pay taxes on carried interest at the ordinary income rate, while the government would continue to tax investment activity using the manager’s own funds at the capital gains rate. The bill is still pending in the Senate.

New Benchmarks Introduced

One of the pioneers in private-equity portfolio management software, The Burgiss Group, last month introduced a service that lets limited partners benchmark their performance against that of a database of thousands of funds. The product, called Private iQ, is initially available only to investors that contribute data to the database, but down the road it may become available to other customers. Among statistical measures provided are the internal rate of return, realized international rate of return, investment multiple, realization multiple and unrealized multiple. Customers also get access to statistics that show cash flows and valuations over time. The benchmarks don’t reveal either the contributors to the database, or the names of the funds included.