David Kirchheimer, chief financial officer of Oaktree Capital Group LLC (OAK), the world’s largest distressed-debt investor, said taxes on carried interest will increase as lawmakers look for ways to reduce the federal debt.
“I think it’s a forgone conclusion that carried-interest rates will go to the so-called ordinary rates and that the portion of them that historically has been taxed at long-term capital gains rates will probably disappear,” Kirchheimer said today at Bank of America Corp.’s Banking and Financial Services Conference in New York.
Members of the U.S. Congress have proposed removing the treatment of carried interest, the share of profit from investments that’s allocated to the general partners of private- equity and hedge funds, as a capital gain. That treatment allows the profits to be taxed at a 15 percent rate, rather than the 35 percent top rate that applies to ordinary income.
The change would have less impact on Los Angeles-based Oaktree than on buyout firms, Kirchheimer said, because Oaktree’s funds collect a lower portion of carried interest than traditional buyout funds.
Kirchheimer said the benefit of a change by Congress would be removing business uncertainty about corporate and personal tax rates. The anxiety regarding the potential change is probably worse than its eventual effects, similar to preparing for a visit to the dentist, he said.
“There’s some anxiety and then you sit in the dentist chair and you get through it, it’s not so bad, and you come out the other side and you’re smiling, your teeth look great and you’re feeling good,” he said. “I can’t wait to get through it.”
Oaktree oversees $81 billion of assets under management.
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