Private equity fortunes soar on prospect of Washington gridlock
For some, gridlock isn’t always bad news.
Private equity managers and their investors, who were concerned about progressive plans to increase taxes and regulation on their industry, are relieved the expected “blue wave” scenario that would have handed Democrats control of the presidency and both chambers of Congress now looks unlikely.
That’s led to jumps in the fortunes five of the wealthiest private equity titans at publicly traded firms since the election as stock prices rose. Apollo Global Management Inc.’s Leon Black, Blackstone Group Inc.’s Steve Schwarzman, Carlyle Group Inc.’s David Rubenstein, Ares Management Corp.’s Tony Ressler and KKR & Co.’s Henry Kravis all saw gains.
The combined increase of the stakes of those five was worth $2.2 billion, according to the Bloomberg Billionaires Index. The firms’ share prices increased anywhere from 6% to 12% since Tuesday, outperforming the 3.3% advance of the Russell 1000 Index Financials index.
“Part of the reason why some may view the potential for a Joe Biden presidency and a GOP-controlled Senate as a positive for the private equity industry is because that scenario brings gridlock,” Bloomberg Intelligence analyst Nathan Dean said. “And gridlock may not be a bad thing when you look at the potential policies that could have happened under a blue wave.”
In that scenario, a sweeping overhaul of private equity regulation -- including elimination of interest tax deductability and carried interest -- probably won’t happen, Jefferies Financial Group Inc. said Thursday in a report.
Regulatory changes and tax increases favored by Democrats could have hurt buyout firms in multiple ways, said Bloomberg Intelligence analyst Paul Gulberg. Raising corporate taxes for private equity managers “would bite into their earnings,” he said, but also “hit portfolio companies they own in their funds, who’d be taxed at a higher rate.”
Capital gains tax increases could also have had implications for fund returns, he said.
Some private equity founders spent big this election cycle, with Schwarzman donating $30.5 million to conservative causes, making him the fifth-largest individual GOP donor.
Still, support for conservatives wasn’t universal. Jonathan Gray, Blackstone’s president and chief operating officer, gave about $3.1 million to Democrats, and also hosted a Biden fundraiser.