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25 Mar 2009

New Legislation Proposed, Raising Hedge Fund Issues

Carried interest legislation is being considered at the federal, state and local level, raising significant local and international tax issues.

Carried interests, which form an essential element of business in almost every section of the U.S. economy (real estate, private equity, hedge funds and health care), have been subject to significant legislative proposals over the last two years.

Most investment funds (hedge and equity) have a general partner (LLC or LP) which receives a management fee (2%) and a carried interest equal to a percentage (e.g., 20%) of economic income including realized capital gains.

Proposals to reform the taxation of carried interest started in January of 2007 with legislation introduced by Senator Levin (D-MI) that would recharacterize "carried interest" income as ordinary income.

During 2008 New York State proposed and New York City introduced legislation that would change the way carried interest is taxed.

President Obama's Budget Blueprint released on February 26, 2009 includes a line item related to taxing carried interest as ordinary income.

900th post

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AIMA Supports New US Treasury Investment Program

Todd Groome, Chairman of the Alternative Investment Management Association (AIMA) said in a statement regarding the Public-Private Investment Program announced by Tim Geithner, "It shows that there is recognition among policy makers at the highest level that the hedge fund industry is part of the solution."

The Treasury's Public−Private Investment Program aims to unclog credit markets and promote credit extensions, according to the Northern Trust Economic Research Department. The program has chalked out two initiatives – Legacy Loans Program and Legacy Securities Program. The Legacy Loans Program combines FDIC guarantee with debt financing from the private sector and Treasury to purchase troubled loans from financial institutions.

"Hedge funds can and should play a crucial role in assisting the recovery by providing counter-cyclical risk capital at times of distress like this," Groome said.

"AIMA, as the global trade body for the world’s hedge fund industry, is committed to working with policy makers internationally to help solve the current market crisis and prevent future crises from taking place," he concluded.