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Date: Wednesday, December 27 2017 05:02 PM
Subject: (BN) Leon Black's Tax-Overhaul Dilemma Could Alter Wall Street M
From: Glenn Dubin (DUBIN & COMPANY LP) [REDACTED]
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(BN) Leon Black's Tax-Overhaul Dilemma Could Alter Wall Street M
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Leon Black's Tax-Overhaul Dilemma Could Alter Wall Street Model
2017-12-27 11:00:00.2 GMT

By Simone Foxman and David Carey
(Bloomberg) -- Leon Black recently posed a question whose
answer will determine how profitable the new U.S. tax regime
could make Wall Street firms like his Apollo Global Management
LLC.
Publicly traded partnerships, such as Apollo, are taxed
differently than corporations. So should Apollo take advantage
of the overhauled tax rules to pay less in taxes? Or should it
use this chance to change to an Inc. from an LLC, which would
increase its tax bill but allow it to attract investments from
mutual funds that have previously been out of reach?
"We're still analyzing," Black told the Goldman Sachs U.S.
Financial Services Conference Dec. 6. "It's an uncertain
outcome."
Either way, it's most likely a money-making outcome. The
tax changes are a boon for private equity firms such as Apollo,
where Black is chief executive officer. The new lower corporate
rate has made it possible for bigger publicly traded
partnerships to consider the change. As it is, management fees,
which typically account for 30 percent or more of their
earnings, are already taxed at the corporate rate. That will
drop. The legislation scarcely touched the 23.8 percent rate
paid on incentive fees, also called carried interest, which
incur no additional levy when paid out to shareholders.

Double Tax

If the partnerships converted to corporations, the
incentive fees would be hit with a second layer of tax when
they're paid out. That would push the combined tax rate on
incentive income paid out as dividends to nearly 40 percent,
according to Peter Furci, co-chair of Debevoise & Plimpton's
global tax practice.
But it would also allow the newly minted corporations
access to indexes, and therefore the mutual-fund and ETF
markets. About $2.2 trillion follows the S&P 500 Index,
according to its website. As of June, $122.6 billion in assets
tracked the Russell 2000 Index, the best-known small-cap U.S.

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