Sir Ronald Cohen, the founder of Apax Partners and one of the biggest beneficiaries of Europe’s recent private equity boom, has become the latest high-profile figure to advocate an increase in tax levels for partners at large buyout funds.
In an interview with the Financial Times, Cohen suggested that the current capital gains rules, which allow partners to pay as little as ten percent on the carried interest from their funds, should be re-examined.
“We need to look again at whether the incentives need to be as great for the larger funds as they are today… Maybe the 10 percent rate needs to be raised to something more reasonable,” he said.
Cohen’s comments will have particular resonance as he is a prominent backer and close confidant of Gordon Brown, the UK’s prime minister-in-waiting.
However Cohen, who left Apax Partners, the firm he built into one of Europe’s largest buyout firms, two years ago, said this revision should not apply to firms like his latest venture, socially-minded venture capital group Bridges Ventures. He told the FT that the tax break was still appropriate for the smaller or first-time funds that support higher risk, entrepreneurial business.
“The rules that are in place today were designed to attract venture capitalists to a nascent sector and the initiatives that were provided at the time were very well justified in my view and continue to be justified for smaller firms. But what has happened over the last few years is that the industry has been transformed by mega-funds.”
Cohen was of course one of the biggest beneficiaries of the CGT rules during his time at Apax, which has now abandoned venture investing. It is currently raising a fund reported to be targeting in excess of €11 billion.
His comments come in the week that BVCA, the UK industry trade body, came under sustained attack from politicians at the first meeting of the Treasury Select Committee’s enquiry into the industry’s tax treatment.
Many in the industry believe that changes to the treatment of carried interest, particularly for the larger firms, are becoming increasingly inevitable. Some of these firms will have the chance to fight their corner next week, at the Select Committee’s second hearing.