◼ FINANCE Bloomberg Businessweek October 7, 201925ILLUSTRATION BY IGOR BASTIDAS
●Private Equity Throws Its
Weight Around in WashingtonAs Republicans set out to overhaul the federal tax
code in 2017, private equity began leveraging its
influence. The industry was out to protect a wildly
lucrative tax break that’s helped mint more billion-
aires than almost any other kind of business. And
it succeeded: The idea of closing the loophole sim-
ply went away.
The tax break on “carried interest” allows PE man-
agers to pay a lower rate on much of their income.
They get paid in two ways: an annual management
fee and a share of investment profits. While the fee is
taxed as ordinary income, the profit share is treated
like a capital gain, which can be taxed less. Critics
say this doesn’t make sense, because the profit share
is really just another fee paid by clients. The upshot
is that superwealthy private equity managers could
pay lower tax rates than their secretaries.
Ominously for PE managers, Donald Trump
had vowed on the campaign trail to scrap the loop-
hole. But soon, Kohlberg Kravis Roberts & Co.’s Ken
Mehlman, a former head of the Republican National
Committee who’s now the buyout firm’s global head
of public affairs, was helping to persuade lawmakers
on Capitol Hill to fight for PE’s cause. After an effort
spearheaded by Mehlman, 22 House Republicans
signed a letter to the Ways and Means Committee
saying the tax break “bolsters long-term investment
in American companies.”
Quietly meeting with Treasury Secretary Steven
Mnuchin and top economic advisers was Blackstone
Group Inc.’s Jonathan Gray, who’d later become the
firm’s No. 2. And Blackstone head Stephen Schwarzman
was enjoying rare access to President Trump, his
Palm Beach, Fla., neighbor and regular dinner date at
Mar-a-Lago. Schwarzman, worth $17.6 billion, is one
of Trump’s most generous donors. He’s also traveled
to China repeatedly on behalf of the administration.
Congress ultimately decided to put a limit on the
tax break—money managers would have to hold their
positions for three years to get it. But this barely
put a dent in PE’s business model, which typically
involves investing in companies for years. The very
day the Senate passed the law, Schwarzman hosted
a $100,000-a-plate fundraiser for the president at
his Manhattan apartment.
Over the past decade, private equity and invest-
ment firms—not including hedge funds—have dropped
about $400 million into federal campaign coffers,
according to the Center for Responsive Politics.
That’s more than commercial banks or the insuranceindustry. “They have managed to have influence
with both parties,” John Coffee Jr., a law professor
at Columbia University, says of PE.
Leading private equity’s charge in Washington
is the prosaically named American Investment
Council. Formerly called the Private Equity Growth
Capital Council, the lobbying group—like the cor-
porate takeover game itself—has deftly rebranded.
The AIC regularly places opinion pieces in news-
papers across the country to burnish private equi-
ty’s reputation. “We’re working strategically to
ensure decision-makers in Washington know how
private equity benefits their local communities,” saysChief Executive Officer Drew Maloney. “And during
this presidential primary process, we’re sending a
clear message to candidates that they are visiting
towns where private equity supports local jobs and
strengthens pensions for public-sector workers.”
KKR’s Mehlman—who in 2017 was chairman of the
AIC—isn’t the only one to toggle between politics and
PE. Tim Geithner, Treasury secretary under Barack
Obama, is now president of the buyout shop Warburg
Pincus LLC. Jack Lew, who took Geithner’s spot,
eventually went to the firm Lindsay Goldberg & Co.
Stacey Dion, head of government affairs at the Carlyle
Group LP, previously worked as a policy adviser for
former House Speaker Paul Ryan. Eli Miller, a man-
aging director for Blackstone’s government relations
group, used to be Mnuchin’s chief of staff.
PE has more wars to fight in Washington, fore-
most among them ensuring that federal regulators
keep their hands off. In terms of assets, Blackstone,