Rees: Early hedge fund GP stake sales were primarily tax arbitrage plays
Michael Rees · Michael Rees – Inside GP Stakes at Dyal Capital (Capital Allocators, EP.278) · Oct 31, 2022 · at 17:32
Michael Rees, founder of Dyal Capital, explains the difference in economic motivations between early 2000s hedge fund minority stake sales and modern private market GP stake transactions.
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“It probably was more of a cash out trade vis-a-vis the hedge fund industry, 1520 years ago, because the motivation was really a tax arbitrage. And a hedge fund that is trading relatively actively is going to generate mostly short-term gains, and that will pay in New York City a 50% tax rate, and the management fee profits are also at 50%. So if you could convert that to long-term capital gains by selling a forward slice of that, you could reduce your tax rate by approximately half.”
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