Hedge funds brace for looming tax changes

By Lawrence Delevingne

Fri May 21, 2010

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In the past week, Congress has once again proposed a measure that would remove the exemption that allows hedge funds and other asset managers to pay capital gains taxes on carried interest. The measure looks likelier to pass this time than in any previous attempt, but hedge funds aren't panicking, at least openly, and some say they view the higher taxes as a welcome change.

"From an ethical point of view, I'm not sure why hedge fund managers should pay less tax than people who have real jobs and work hard," said Steve Shapiro, president of Intrepid Capital Management. "I'd certainly be the last person to tell you if they tax carried interest it's going to destroy the free enterprise system."

A proposal likely to pass Congress would effectively raise the tax rate to 34.7% on the performance fees hedge funds charge their clients for gains on investments held for...

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