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Tax status change sees shares soar in Private Equity firms

Back in August, AlternativeSoft wrote about Private Equity Group Carlyle’s decision to abandon their partnership status as they looked to follow in the footsteps of other private equity firms trying to improve share price.


Now in November we sit here bringing you the sequel if you would to that story.

tax-status-change-sees-shares-soar-in-private-equity-firms

Loss Leader

In August many saw this move from private equities largest firms as a risk. Paying tens of millions of dollars extra per year on taxes due to the switch was understandably questioned.

Today Blackstone, Ares, KKR and Apollo Global Management are trading at near record highs.

Apollo, headed by Leon Black, has experienced gains of 25% since May granting very welcomed extra firepower for further deals.

Apollo co-founder Joshua Harris spoke about how the firm’s inclusion in the CRSP indices had encouraged Vanguard to buy close to 13m shares.

Another beneficiary of the tax change is Stephen Schwarzman founder of Blackstone. Since their decision to become a corporation in April Schwarzman’s shares have risen by close to $3.5bn, reaching $12.5bn.


Why has the change been so positive?

As partnerships these firms had what appeared to be on the surface - significant tax benefits. However even if a shareholder owned a single share, they were forced to file very complicated tax returns for multiple US states.

Once congress approved tax cuts on corporate earnings, firms believed there was more to gain by way of increased buying of the stock from mutual funds, compared to the money they would save in tax relief.

Knowing what we now know, it’s looking like the correct evaluation with investor interest up and continuing to rise.

Carlyle Group

Coming back full circle, Carlyle Group who we began talking about back in the Summer will become the last of the major listed private equity group to hold partnership status.

The change as mentioned back in August by AlternativeSoft will be happening in January. The early signs for Carlyle are good and emulate those of their industry peers; shares have risen nearly one-fifth since the change was first announced back in July.

AlternativeSoft is an award-winning quantitative analytics software specialising in asset selection, portfolio construction and customised reporting. To find out more or register for a free demo, get in touch with our team.


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