Tales from the Upper House

I’m still live-blogging today’s Congressional hearings on carried interest tax, but here are a couple of notable moments from the Senate hearing (which has concluded):

Senator Gordon Smith (R-OR) had the day’s most explosive line, when he mused that this entire issue was sparked by the “extravagant lifestyle of one man.”

It’s unclear if Smith was knocking Blackstone chief Steve Schwarzman or his detractors (or both) – but it was a stunning statement, nonetheless. It also lent further credence to the suggestion that Schwarzman should have canceled his lavish birthday party for the sake of his colleagues and PE market peers.

Senator John Ensign (R-NV) is either confused or intentionally deceptive. I’ll stick with confused, as it’s a kinder diagnosis.

Ensign cited a Blackstone Group estimate that passage of a pending Senate bill would reduce Blackstone’s market cap by 40% (which I hadn’t heard, but no matter). This is the so-called “Blackstone Bill” — which specifically deals with publicly-traded limited partnerships. So far so good, and Ensign even acknowledged that the Blackstone estimate may be a bit dire.

But then Ensign mistakenly used the Blackstone estimate to challenge comments from Russell Read, chief investment officer of CalPERS. Read had earlier testified that he did not know if the Levin Bill — a House bill that would change carried interest treatment for all private equity firms — would significantly impact fund returns, if at all. Specifically, Ensign stated that the impact would certainly be significant, were the “market caps” of all CalPERS private equity funds to be cut by 30% to 40%.

In other words, Ensign conflated the two bills. Passage of the Blackstone Bill would not impact the entire CalPERS private equity portfolio, and passage of the Levin Bill would not cut the CalPERS portfolio value by 30%-40%. Again, let’s just hope he’s confused…