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Private Equity Execs Worried about Losing Carried Interest Tax Break

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New York (February 27, 2013)

By Michael Cohn

Private equity fund managers are beginning to be concerned that they may lose their tax break on carried interest as lawmakers in Washington again debate tax reform.

A new survey of private equity managers by accounting and consulting firm BDO USA found that 14 percent of the general partners at PE firms surveyed identified the impact of tax burdens on private equity, including the proposed increased tax on carried interest, as the most significant challenge facing private equity firms in 2013. Pricing also ranked among the top concerns, with 15 percent of fund managers identifying it as the primary challenge in the year ahead.

According to the study, 64 percent of fund managers saw the overall value of their current portfolio increase during the past 12 months, compared to only 15 percent who saw the value of their portfolio decline and 21 percent who indicated the value of their current portfolio stayed the same during 2012.

Of fund managers who saw the value of their portfolio decline, 46 percent each indicated that their fund's value decreased by less than 6 percent and by 6 to 15 percent. Another 8 percent indicated that their fund's value declined by 16 to 25 percent, the largest reported decrease,  compared to 83 percent of respondents who reported that their fund's value decreased by 6 percent or more in last year's study.

Conversely, of fund managers who saw the value of their portfolio increase, the largest percentage (38 percent) reported increases of 16 to 25 percent during the past year, followed by increases of 6 to 15 percent, which were reported by 34 percent of respondents. Nine percent of respondents reported an increase of 26 to 35 percent and another 7 percent reported increases of more than 50 percent in 2012.

The improvements fund managers have seen in the performance of their portfolio companies during the past year correspond with steps they have taken to mitigate losses and improve the returns on their investments. During the past year, 72 percent of fund managers have reassessed market strategy at portfolio companies performing below forecasts or expectations. Another 67 percent have monitored cash flow on a weekly basis, 58 percent have reduced headcount, 58 percent have reduced costs by scaling back and 53 percent have renegotiated debt.

2 Comments

Ditto!

Posted by: tego@verizon.net | March 1, 2013 1:42 PM

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Let us hope that Congress will crucify these degenerates that rip off the normal people with their financial shenanigans. They are nothing but a bunch of casino owners skimming the cream from investors. They have been living by bribing the right Congressmen.

Posted by: Janosik | February 28, 2013 12:59 PM

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