- Walter Ramsley
One of the unheralded features of the JOBS Act is a change in how hedge funds can market themselves. Before the law was enacted all advertising was restricted to so-called “accredited investors,” rich people basically, who the government figured can fend for themselves. Under the new rules we now can talk with anybody, which simplifies life quite a bit. Actual investments still are restricted to people who meet the SEC guidelines. But while in the past we had to watch everything we said, and wrap everything around one disclaimer after another, now at least we can talk without fear of retribution.
As a testimonial to Barack Obama for enacting the new law (which has plenty of other benefits) here’s a pitch for an idea the President has promoted on several occasions.
End the “carried Interest” tax break used by private equity investors, and by a few hedge funds, as well. That’s the scheme where a guy puts up no money himself, raises the money he needs from outside investors, earns 20% of the profits plus 2% of the total investment per year as walking around money, and somehow gets that called a capital gain by the IRS instead of earned income. It’s not a capital gain. He didn’t invest any cash. He worked. He made money. It’s ordinary income.
People in favor of the treatment argue there will be less investment if the law changes. Or that the managers won’t bother doing the deals because, well, they can justify 85% of $10 million but if it’s only 65%, they’d rather drive a cab or something.
The whole thing is small potatoes by government standards, about $1-$2 billion in lost tax revenue per year. Still, it’s an obvious bargaining chip to insert in any tax reform package that ultimately gets done.