Election Over, but Private Equity Still Faces Fallout

Prospect of Bigger Tax Bite for Buyout Firms

Private equity executives may feel some relief with the end of the U.S. Presidential campaign, which saw one of their own, former Bain Capital head Mitt Romney, the Republican candidate, fall to Barack Obama.

Romney's tax returns drew scrutiny during the campaign, unwelcome attention for an industry that usually prefers to avoid the limelight. But the fallout isn't over for private equity, according to the Economist Intelligence Unit.

"A renewed look at the favorable treatment the industry has received from the taxman is surely coming," analysts with the Economist Intelligence Unit wrote in a recent report. Under existing "carried interest" rules, private-equity firms' profits are taxed at the rate imposed on capital gains, currently 15%. For individual workers, by comparison, marginal income tax rates typically top out at 35%.

"The Obama campaign characterized carried interest as a 'trick,' " the group said. "The President wants to close the loophole."

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