Vehicular taxicide

Although the mighty limited partnership has some challengers, its powerful formula for aligning interests appears to make it unstoppable as a mode of business organization.

After taking over the private equity industry, the limited partnership is now devouring much of the public-equity management world in the form of hedge funds. (It has often been said that the only thing many hedge funds have in common is a compensation model.)

Limited partnerships place all partners to the agreement on equal footing relative to their designated roles and capital contributions. The great monkey wrench that remains in this otherwise harmonious profit-incentive machine is tax. Taxes are variegated across municipalities and controlled for differently depending on who you're taking advice from. A limited partner in one country who invests the same amount as a limited partner in another country may experience a very different performance from the fund because of tax differences. General partnerships that have enjoyed the same amount of pre-tax carry may ultimately end up with different amounts in their respective bank accounts depending on how efficiently they have set up their partnerships for tax treatment.

The January issue of Private Equity Manager looks at the issue of tax complexity in several ways. Beginning on p. 14, Andy Thomson looks at a number of developments across Europe that have resulted in more choices for organizers of private equity funds. Most notable among them The SICAR of Luxembourg, many governments of the EU have sought to create more tax-friendly vehicles for private equity firms. On p. 20, Judy Kuan studies the increasing use of off-shore vehicles in US private equity. And on p. 24, PEM enters the murky waters GP carry taxation.

Your subscription to Private Equity Manager continues to grow more valuable – accompanying this month's issue is our first-ever PEM Yearbook. The Yearbook is our way of taking a look back at the year just passed to re-examine the most important trends for those charged with managing the finances and operations of private equity firms.

We hope you enjoy the Yearbook as well as the January issue of PEM you now hold, which you'll note has an updated look and feel. Consider it an improved reporting format.

Enjoy the issue,

David Snowdavid.s@us.investoraccess.com