Loan Note: Carried interest is a talking point once more; Atalaya brings in Elm Park team

Carried interest reform appears to be back on the agenda in the US. Plus: Atalaya brings in a team from Elm Park; and a UK law firm completes a new type of restructuring. Here's today's brief for our valued subscribers only.

They said it

“The labour market is going to be the best gauge as to whether we’re really headed towards a recession and whether businesses are really cutting back on hiring”

EY-Parthenon economist Gregory Daco, quoted in the Financial Times, reflecting on the possibility of a US recession – and arguing that GDP is not the only measure to take into account.

First look

Washington: Pushing ahead with carried interest reform (Source: Getty)

Keep calm and carry on
The spectre of carried interest taxation reform in the US has returned once more. Earlier drafts of President Joe Biden’s so-called ‘Build Back Better’ legislation included language that would require private equity managers to hold assets for at least five years before they could qualify for a break on their carried interest taxes. That bill had stalled for nearly a year until US Senator Joe Manchin – one of two Dem hold-outs – announced last Wednesday that he and Senate Majority Leader Chuck Schumer had worked out a new deal.

Although precise details have yet to emerge, Schumer and Manchin say their newly christened Inflation Reduction Act will inject billions into the American economy through energy, climate and healthcare investments. It will pay for this by, among other things, raising the corporate minimum tax rate to 15 percent – and gathering $14 billion from changing the way carried interest is taxed. Schumer has promised a vote on the bill by next week.

The bill passing is not a certainty and, if Republicans win the House in November, they might be able to slow, stop or even reverse certain proposals. The impact of carry reform, however, could be significant. In a Private Equity International survey of fund managers and lawyers last year, 81 percent said taxing carried interest as income would negatively affect their firm’s operations. When it came to LP alignment, nearly 70 percent said a higher rate would result in less alignment with their investors.

Perhaps the least helpful potential effect in this competitive hiring landscape: 79 percent said taxing carry higher would hurt PE’s appeal to current and prospective talent. “The industry becomes less attractive to people and that has an impact on who does it and who stays in it,” said a London-based fund of funds manager at the time. Sponsors will no doubt be paying close attention to events in the Senate over the coming days, weeks and months.

Elm Park team joins Atalaya
Atalaya Capital Management has brought on the investment team of Elm Park and acquired a portfolio of the latter’s loans valued at about $250 million. Terms were not disclosed.Atalaya said the development would give it a foothold in Dallas, which it calls the financial epicentre of Texas. Atalaya said the team at Elm Park would strengthen its existing capital solutions capabilities and enable the platform to further expand its sourcing efforts and tap into an attractive deal and talent sourcing pipeline.Elm Park, with $537.8 million of assets under management, per Private Debt Investor R&A, was founded in 2010 by Mark Schachter and Charles Winograd.New York-based Atalaya, with about $8.5 billion of AUM, was founded by Ivan Zinn. In the spring, Atalaya hired Nathan Romano, former president and chief operating officer of York Capital Management, as president of the firm.


Law firm in restructuring firstBegbies Traynor said it has advised on the first SME restructuring to use a “cram down” of dissenting creditors in a turnaround that has saved more than 300 jobs.The UK’s High Court sanctioned a restructuring plan of Houst, which will see its debts reduced and shareholders inject an initial £500,000 ($607,000; €597,000) of working capital into the holiday and private home lettings business to support ongoing trading.Houst, a firm with a pre-pandemic annual turnover of around £12 million, had run into difficulties as the pandemic reduced demand for short-term holiday lettings.Under the terms of the plan, an initial payment will be made to the secured creditor and future profits will be used to fund further payments into the plan, which will enable payments to be made to preferential and unsecured creditors. The restructuring plan legislation was introduced via the UK’s Corporate Insolvency and Governance Act 2020.Pension schemes eye UK residentialDefined benefit pension schemes will increasingly look to invest in UK residential property development, according to new research from investment manager Downing.The research showed up to 86 percent of UK pension funds expect investment in residential property development to increase over the next five years, with nearly one in five (18 percent) forecasting a dramatic increase. Downing’s study of UK pension funds, which collectively control around £125.5 billion ($152 billion; €150 billion) in assets under management, found more than three out of four (78 percent) believe the UK’s target for housebuilding can only be met if institutional investors become more involved in funding.

Pension schemes recognise they have a part to play in meeting the growing demand for residential housing, the research found, with 86 percent saying DB schemes can play a positive role in the sector.New HR head for MV CreditMV Credit, the Natixis Investment Managers affiliate, has appointed Anita Isichei as head of human resources to work across the firm’s London, Paris and Luxembourg offices.Isichei joins from The Global Fund, where she most recently worked as an HR business partner. She previously held a senior HR position at First Abu Dhabi Bank.Based in London, Isichei will be responsible for the development, implementation and execution of MV Credit’s HR strategy, including supporting the firm’s diversity and inclusion efforts.

Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal