Capitol calls

It’s amazing how a town full of politicians and lobbyists can emanate a sense of serenity. Washington DC is a city is full of trees. Green is everywhere; everything is in bloom. A stroll along the Potomac River can take the city’s residents a thousand miles away from the perpetual political wrangling on Capitol Hill.

Since the ascension of Barack Obama to the Oval Office in 2008, Washington has been in a state of flux. Many aspects of American life have been touched by some kind of change and the private equity industry has not been immune from the large-scale changes Obama has seemed keen to achieve in his short tenure.

At a recent private equity conference held in Washington, for example, conversations frequently turned to pending regulatory changes in the US, specifically the renewed push to tax GPs’ carried interest at higher, ordinary income rates rather than as capital gains.

The delegates had come from around the world to Washington to talk about the opportunities in the emerging markets. But tax and regulatory worries were voiced time and again at the conference, which was hosted by the Emerging Markets Private Equity Association and the IFC.

The carry tax debate has raged in Washington for several years and one lobbying group, the Private Equity Council, has been in the centre of the battle.

The PEC is tasked with much more than simply steering legislative change on behalf of its mega-firm constituents. Its remit includes getting the story out to the public about the benefits of private equity from job creation to operational improvement.

It is led by Doug Lowenstein, who was a panellist at the conference. Several times delegates from countries around the world reminded Lowenstein that if carried interest gets taxed as ordinary income in the US, changes could very likely happen in their countries as well.

As of press time, the US Senate had voted down the bill that would treat 65 percent of carried interest as ordinary income, exposing it to tax levels as high as 39 percent (see p. 27). But the bill is far from dead. Senators will likely continue to negotiate provisions in the jobs and tax bill and there will likely be another vote. The battle will continue.

At a time when politicians are keen to take shots at the bankers, private equity has also found itself in the crosshairs. The industry has learned very quickly that it needs a voice in Washington if it’s going to have any kind of influence over its future in the US.

Other private equity-related associations, like the National Venture Capital Association, have ramped up their profiles and activities in Washington. The Association for Corporate Growth, a trade organisation whose members include many mid-market US private equity firms, has begun to monitor regulatory issues in Washington and issue reports and updates for its members. The ACG had to amend its bylaws to allow this activity, as in the past the organisation was explicitly forbidden from doing public policy work. With a number of potentially troubling laws being debated in the nation’s capital, ACG’s members began to ask for help.
ACG and PEC have begun working together on certain issues and ACG also collaborates with other organisations based in Washington, including the US Chamber of Commerce and the National Small Business Association.

As the sailboats on the Potomac glide peacefully along, the turbulence beneath the surface is palpable. For the various organisations banging the drum for the private equity industry, the wrangling will continue long into the summer.