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Group alters private equity tax view

September 06, 2007|From Reuters

A trade group representing more than 500 U.S. pension funds dropped its opposition to two bills aimed at raising taxes on private equity firms, saying it was no longer coming out against the proposals.

The group's decision reflects the heavy pressure unions are putting on pension fund managers and public employees to support the tax increases.

The issue pits pension fund managers, who have seen their funds' returns boosted by private equity investments, against workers who have in some cases been the victims of job cuts from private equity deals.

The National Conference on Public Employee Retirement Systems sent a letter dated Tuesday to the leaders of the Senate Finance Committee -- Chairman Max Baucus, a Montana Democrat, and senior Republican Charles E. Grassley of Iowa -- asking them to disregard a letter sent 11 days earlier.

In the first letter, the conference expressed worry that tax increases would hurt the economy, public pension funds and public employees. In its letter this week, the group said that although some of its members believed the bills could hurt public employees, most didn't share that opinion. The organization said it would take no stance on the bills.

Unions have been vocal in supporting the proposed tax increases and in criticizing private equity riches in general.

The AFL-CIO's stance was an important factor in the change in the pension fund organization's position, according to a person familiar with the matter.

Private equity firms raise money from big investors such as pension funds and endowments and use the cash to buy companies. They typically cut costs and streamline businesses before selling them a few years later, distributing the proceeds to investors.

Baucus and Grassley introduced a bill in June that would require publicly traded partnerships deriving income from investment advisory and asset management services to pay the federal corporate tax rate of as much as 35% instead of the 15% rate they now pay. A bill pending in the House would boost taxes on private equity managers.

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