New York probes private equity tax strategy
At least a dozen U.S. private equity firms have been subpoenaed by the New York state attorney general as part of a probe into whether a widely used tax strategy that saved these firms hundreds of millions of dollars is proper, a source familiar with the situation said on Saturday.
Among the firms that were subpoenaed are Bain Capital LLC, KKR & Co LP, TPG Capital LP, Apollo Global Management LLC and Silver Lake Partners LP, the source said.
Bain was once headed by Mitt Romney, the Republican candidate who hopes to unseat President Barack Obama in the November 6 election.
The subpoenas, which were sent out in July, seek documents related to the conversion of fees these private equity firms charge for managing investors’ assets into fund investments, the source said. This means the investigation predates the release last month of confidential Bain fund documents by Gawker that revealed such a practice.
The practice is known as a “management fee waiver.” As fund investments, the income would be taxed as capital gains, which attract rates around 15 percent. Without the conversion, the fees would be ordinary income, taxed at rates around 35 percent.
Other firms that received subpoenas include Sun Capital Partners; Clayton, Dubilier & Rice; Crestview Partners; H.I.G. Capital; Vestar Capital Partners; and Providence Equity Partners.