Carried interest survives the battle—but the war?

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The Weekend Pitch

September 4, 2022

The Daily Pitch is powered by PitchBook’s industry-defining research and best-in-class data

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In August, US President Joe Biden's Inflation Reduction Act (IRA) was signed into law, and it was a significant political win for the private equity industry. The act had originally threatened to remove a tax loophole on carried interest—a major source of profit for GPs—but instead, investors walked away with tax relief.

Carried interest is the cut—normally around 20%—that GPs get on the money returned to investors. Under current law, a loophole allows these gains to be taxed at the long-term capital gains rate, which is capped at 23.8%. Previous acts have extended the required holding period for some assets before this rate can be claimed.

The IRA originally had provisions to remove the loophole altogether, but they were removed at the last minute after Democratic senator Kyrsten Sinema—a beneficiary of successful PE lobbying—refused to back the bill until it was amended. For now at least, the loophole is safe. But the attempt to close it is just one pitched battle in a larger war being fought by regulators and lawmakers to rein in an industry that now has outsize influence on the global economy.

I'm Andrew Woodman, and this is the Weekend Pitch. You can reach me on Twitter @adwoodman or at andrew.woodman@pitchbook.com.

Quote/Unquote

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"It's what I'm into, and what I really like doing. I like talking to founders and asking questions and learning about businesses."

—Serena Williams told Bloomberg just before her retirement announcement last month. Williams, who will retire after the 2022 US Open in New York, says she hopes to run a billion-dollar fund one day.

Deal flow

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VC investment in metaverse startups more than doubled in 2021 to $18.1 billion across nearly 1,500 deals, according to PitchBook data.

Our latest market map explores where money is going in the metaverse ecosystem, with a closer look at the entertainment segment.

Did you know ...

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… That the emergence of blockchain networks such as Ethereum, Algorand and Solana has enabled startups to slice real estate into small pieces that are stored on blockchains and traded between investors?

PitchBook's latest analyst note on the topic explores how real estate tokenization has the potential to solve issues historically associated with real estate investing, such as illiquidity and high barriers to entry.

Datapoints

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Since the beginning of the year, the PE industry has poured $41.5 billion into companies supporting and operating data centers, continuing a strong dealmaking pace set in 2020 and 2021, according to PitchBook data.

We took a closer look at the 10 most active PE investors in data center deals by deal count since 2012. Swedish PE powerhouse EQT topped the list with 17 data center transactions over the last decade, followed by US firms GTCR and Berkshire Partners.

Recommended reads

Could electric vehicles bring about a revival of the American automotive industry? [Vox]

Despite the hype, the private markets aren't the "cure-all" some investors are hoping for. [Institutional Investor]

Do robots dream of winning the Colorado State Fair fine arts competition? [The Verge]

How PE firms like Blackstone and The Carlyle Group are taking drastically different approaches to oil and gas investment. [The Wall Street Journal]

The environmental costs of data centers that no one wants to talk about. [NPR]

In a place where the summer sun shines for 21 hours a day, climate change is helping to turn frozen ground into farmland. [The New Yorker]

This edition of The Weekend Pitch was written by Andrew Woodman and Priyamvada Mathur. It was edited by Chris Noble and Sam Steele.

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Carried interest survives the battle—but the war?

Quote/Unquote

Deal flow

Did you know ...

Datapoints

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