The Taxes Are Coming! Hedge Fund Taxation

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Includes: BX, FIG
by: George Gutowski

The taxes are coming! The taxes are coming! Are Fortress Investment Group (NYSE:FIG) and Blackstone Group LP (NYSE:BX) really worried? Will they change their modus operandi? What about the other funds? Will they abort their plans to go public?

The tax code is enormously complex. Most executives and investors do not truly understand the document in its entirety. The public debate is a populist reaction to profits which run in the hundreds of millions while workers and suppliers are restructured out of their livelihoods. What did you expect would happen in a democracy as the presidential election cycle starts to kick into high gear? However, no one will win the presidency because he or she will or will not increase hedge fund taxes.

Most analysts do not understand the tax issue. They normally rely on management to select an effective tax rate and everyone stays with it.

The current tone of the tax debate assumes that huge profits will continue. The left wing is appalled that the fair share is not collected. The right wing is appalled that productivity is being penalized. All arguments are so predictable.

Consider this. Will hedge funds and associated vehicles continue to make tons of money? Many expect the bubble to burst. When bubbles burst, the financial consequences are ugly. Hedge funds will find tax relief to be a valuable business tool as they will need to engage in financial engineering and restructure their problems.

Nothing stays the same for very long. Huge profits and guaranteed home runs just because you show up at the office will not continue for ever.

I would be long tax practitioners. Career prospects look very good. Second choice, hedge fund restructuring experts, also looks like a good career choice.

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