Side Letter: Is Vista’s Robert Smith’s tax settlement a $139m ‘nothing burger’?

Robert Smith's admitted involvement in an illegal scheme to evade tax raises a question about his position at Vista Equity Partners. Plus: how diversity boosts returns and data on Asian LPs' fee focus. Here's today's brief, for our valued subscribers only. 

They said it

“Smith committed serious crimes, but he also agreed to co-operate. Smith’s agreement to co-operate has put him on a path away from indictment.”

In a statement, US attorney David Anderson for the Northern District of California announced Vista Equity Partners founder Robert Smith had signed a non-prosecution agreement, admitting he used two foreign funds to hide some $200 million in partnership income from tax authorities.

Just happened

Robert Smith
Smith: $139m settlement. Source: World Economic Forum/Jolanda Flubacher

Massive tax evasion: A ‘nothing burger?’

Last week Vista Equity Partners‘ Robert Smith admitted to involvement in “an illegal scheme to conceal income and evade millions in taxes” and paid $139 million in taxes and penalties. This raises a crucial question: is his position as figurehead and key person at one of the world’s largest investment firms tenable?

  • Read the statement from the Department of Justice here, and the agreement in full here.

Speaking on condition of anonymity last week, investors had mixed views. Noted one family office LP who has backed Vista funds: “I expect [Vista LPs] to interpret this as a tax dispute with the IRS. There was no investor fraud, nothing that touches the SEC. As they said in the old days, ‘This is a complete nothing burger.'” Said another Vista LP: “The scale, size and purposeful way he went about [this] is pretty amazing. I just think LPs are more interested in returns. Sad but true.”

We are currently canvassing public pensions and other investors in Vista’s two most recent flagship funds to see if any will comment on the record. Sadly, the response has been underwhelming so far. More to come on that.

Kara Helander
Helander: diversity is paying. Source: Carlyle

Diversity pays dividends

If you need a compelling argument for greater board diversity, Carlyle’s chief inclusion and diversity officer Kara Helander has one: she told attendees at PEI’s virtual Operating Partners Forum last week that the firm’s portfolio companies with diverse boards have around 12 percent faster annualised earnings growth than those without.

“Our chief investment officer often says that when he’s looking at a management team, the diversity of the leaders around that table is an early indicator of how agile, forward thinking and receptive that leadership team is going to be. He’s always felt that, but now we have the tangible data to back that up.”

Fee-ling concerned

Fund managers seeking capital from APAC institutions should expect a grilling on fees, terms and conditions. That’s because some 58 percent of the region’s institutions said these features are the most important criteria when selecting a private assets manager, according to Schroders’ Institutional Investor Study 2020. This is compared with only 49 percent of institutions in North America and 48 percent of those in Europe, which instead care more about performance track record.


Asian PE: World’s apart

It seemed likely in January that Asia was destined for a troubled year relative to Western markets; this has been turned on its head in recent months. It would be an overstatement to say Asia is enjoying business as usual, but several countries in the region are leading the global charge in terms of recovery. Five Hong Kong-based execs discussed the prospects for the region’s private equity scene in this sponsored roundtable discussion.

Today’s letter was prepared by Toby Mitchenall with Isobel Markham and Alex Lynn.

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