Private equity has the President-elect on speed dial. That may benefit the $2.5 trillion industry as several key issues are put in play.
Wilbur Ross, who made his private equity fortune restructuring bankrupt companies, will as Commerce secretary be the voice of U.S. business in Donald Trump’s cabinet. Blackstone Group LP Chief Executive Officer Steve Schwarzman will chair the President’s Strategic and Policy Forum, a committee of business leaders that will advise Trump on job creation and economic growth.
Jay Clayton, a lawyer at Sullivan & Cromwell LLP who has advised on a host of private market deals, will regulate Wall Street as chair of the Securities and Exchange Commission. And though he wasn’t given the job, retired General David Petraeus, a partner at KKR & Co., was shortlisted for Secretary of State.
While it’s unclear how closely Trump will follow their guidance once in office, it benefits the industry to have some of its titans manning top posts.
“There seems to be more interest in the advice of real-world practitioners than in the past,” said James Maloney, vice president of public affairs at the American Investment Council, the private equity industry’s lobbying group in Washington. “This is encouraging.”
Aside from assigning official posts, Trump has hosted a steady stream of private equity executives since the election. Carlyle Group LP co-CEO David Rubenstein, Blackstone’s real estate head Jon Gray, KKR’s Henry Kravis and Cerberus Capital Management’s Steve Feinberg have been among his visitors.
Here are the private equity industry’s top priorities as Trump prepares to take office:
1) Carried Interest
Disapproval of the tax treatment of carried interest, the portion of a private equity fund’s profits paid to fund managers, was one of the few issues that Trump and rival Hillary Clinton agreed on during the 2016 election.
Carried interest is currently taxed at 23.8 percent -- a long-term capital gain plus an Obamacare surcharge -- versus a top rate on ordinary income of 39.6 percent. The thinking is that fund managers should receive tax relief as entrepreneurs who bore risk, rather than treat the earnings as traditional income.