Pension funds reject carry increase

Two of the US' largest investors in private equity have reportedly warned that should legislators increase the tax burden on general partners, they will not foot the bill.

Senior officials from the $65 billion Oregon Public Employees Retirement System and the $170 billion-plus California State Teachers’ Retirement System, two of the biggest investors in private equity, have said they will resist moves by private equity groups to recoup higher US taxes on executives’ earnings.

According to The Financial Times any attempt to increase the level of carried interest to offset tax increases on the general partner will be rejected.

The UK paper said their stance could prompt other large pension funds to follow.

For now, however, such a stand-off is purely hypothetical. Buyout shops have floated the idea of raising fees in the face proposals in Washington to raise the tax on their profit from the current 15 percent to 35 percent.

However, the proposed legislation has met with resistance. In December, the House approved a bill that included a $48 billion tax increase on managers of hedge funds and buyout firms, but the Senate effectively killed it by passing a similar bill that lacked such provisions.

President George W. Bush said in August he would use his power of veto to keep taxes low and made several allusions to the economic benefits of venture capital.