Private equity group Carlyle have decided to switch from a publicly traded company to a corporation with an eye on making this change in January. This would result in staff being stripped of special voting rights as Carlyle attempt to improve share price by qualifying for inclusion in index tracker funds.
Carlyle will no longer have “inside shareholders” or “outside shareholders” now shareholders will all simply be one class.
The decision to abandon dual class structure is heavily driven to achieve entry into indices such as the S&P 500 which is normally not available to companies with more than one share class.
Additionally, Carlyle are following in the footsteps of their industry peers, including; Ares management Corp, KKR & Co, Blackstone Group Inc and Apollo Global Management LLC.
A whole host of private equity firms have converted to a C corporation, it is believed that a new U.S tax law passed in late 2017 where the highest corporate rate was lowered from 35% to 21% was a motivating factor.
Carlyle are set to allow shareholders to vote, making them the first US private equity firm to hold shareholder votes. This is a major milestone as the private equity industry is famously secretive.
If the change goes ahead in January it means they will pay corporate tax on all performance fee income. In turn this will reduce distributions available to shareholders including the private equity groups billionaire co-founder David Rubenstein.
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