In addition to the fees, which eat into returns for pensioners, private-equity managers have also been criticized for paying a lower tax rate on much of their income than ordinary wage earners. Carried interest is taxed at the lower, 15 percent rate for capital gains, rather than the 35 percent top rate that applies to regular income.
Donald Gogel, head of Clayton Dubilier & Rice LLC, said today he would accept changes to the carried-interest tax rate. The spotlight shed on that issue by Romney's campaign may lead to changes to the U.S. tax code, Gogel said in an interview with Bloomberg Television's Erik Schatzker at the World Economic Forum in Davos, Switzerland.
"I would like to see a progressive system that is far more simple," Gogel said in the interview. The tax code "is not very efficient or fair across the board."
Two-thirds of investors surveyed in the Bloomberg Global Poll say the tax break for carried interest isn't warranted.
Buyout profits and their tax treatment helped make buyout pioneers such as Stephen Schwarzman, co-founder of Blackstone and a supporter of Romney's campaign, some of the richest Americans. Schwarzman, ranked the 66th-richest American by Forbes, held a fundraiser for Romney at his Park Avenue apartment on Dec. 14. He has opposed raising the tax on carried interest and endorsed a flat tax as part of comprehensive reform of the U.S. tax code.
U.S. pensions account for about 27 percent of assets at one of Blackstone's largest funds, compared with 30 percent and 31 percent for comparable funds at Washington-based Carlyle Group LP and New York's KKR, according to Preqin estimates based on the investors it tracks. Their influence was on display last year, when Blackstone lost out on a deal to manage hedge-fund investments for New York City's public pensions after the firm's chief strategist suggested retiree benefits were too generous.
Buyout funds globally are seeking to raise about $165 billion, more than in 2006 at the height of the fundraising boom. KKR, Warburg Pincus LLC and Providence Equity Partners LLC are garnering commitments.
Carlyle Group, which is preparing an initial public offering, and Silver Lake Management LLC are set to begin marketing funds, according to people familiar with the plans.
Search for Yield
Institutional investors stung by the financial crisis have been slow to commit to new buyout funds, which raised almost $214 billion in the second quarter of 2007, at the peak of the leveraged-buyout boom. Industrywide, firms raised $52.4 billion for 108 funds during the fourth quarter.