With that in mind, I have a few PE-specific thoughts on a potential Obama presidency.
First off, there’s the new economic proposals. He wants to loosen rules to allow people to draw as much as $10,000 from their pension plans without penalty. This is essentially taking money out of the system. And who are some of the biggest, most stable investors in private equity? Pension funds. Won’t this contribute further to the already-shrinking pool of capital from which pension funds invest?
I assume this money would be set aside, but as with GP capital calls, not every LP has every dollar at its disposal. We don’t know how hungry the pensioners are to tap into their savings, but pension funds could end up preparing for a giant run by negotiating out of other investments. Two things make this less scary for private equity: For one, PE is the least liquid of all pension fund assets. And two, as a colleague pointed out, this would be harder on smaller pension funds, which are less likely to have alternative investment programs.
Next, there’s carried interest. It was brought up at yesterday’s conference. We know Obama has vowed to tax carried interest as normal income, and that McCain has said he wouldn’t, although that was before he began blaming Wall Street for everything. But, “the issue will be on the table no matter who wins,” said Mark Jones of River Associates. “There are so many needs in the country that every source of revenue will be looked at.” he said.
“There’s no question that Washington needs the money,” added Bela Szigethy of Riverside Company.
And, one more comment on carried interest. The whole game could change with the passing of one quasi-related law. The SEIU’s main reason for attacking private equity is this: When it tries to organize labor unions at many big low-wage workforce companies, it often runs into private equity owners, which tend to squash such efforts. These efforts would be made moot if a union “card check” proposal called the Employee Free Choice Act is passed and signed into law. The proposal would allow employees to organize much easier and without the intervention of management. More importantly, it’d probably eliminate the need for an SEIU to rail against private equity. (This point was originally made by Doug Lowenstein of the Private Equity Council.)