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Passing on the Costs?

Private equity investors – both VC and LBO pros – keep warning that they will pass on additional tax costs to their limited partners, via increases in management fees and carried interest percentages:

“Hey Rep. Levin: The federal government will get more revenue, but the Michigan State Treasury and State U will get less. And we’ll stay exactly the same. Take that!”

What a load of empty bluster. At the same time that LPs are receiving this de facto threat, they also are being warned to expect a continued VC drought (at least for the bottom nine deciles) and lower LBO returns (across the board). In other words: “Pay us more for worse performance.”

Maybe that will wash at certain funds-of-funds – which would just pass the costs on to their own investors – but not at top-down pension funds or endowments that have general investment committees with final say.

If you’re a GP who wants to make threats, stick with the one about moving offshore. At least that’s doable.