Joe Dear, CalPERS chief investment officer, called “indefensible” the tax rate paid by private equity managers on much of their income — less than half that for ordinary wage earners.
“General partners should recognize that tax treatment of their income has become indefensible,” said Mr. Dear at a meeting of CalPERS' board Monday in Sacramento.
The $229.6 billion California Public Employees' Retirement System, Sacramento, had about $50 billion invested in private equity as of June 30.
Private equity managers' carried interest is taxed at the 15% rate for capital gains, rather than the 35% top rate that applies to regular income. U.S. public and private pension plans provide 42% of the capital for all private equity investments, according to the Private Equity Growth Capital Council.
President Barack Obama's budget proposal on Monday reiterates his proposal to tax carried-interest income earned by hedge fund managers and private equity partners at ordinary income rates, raising $13 billion over a decade.
Private equity firms typically charge about 1.5% of assets to cover their expenses, and 20% of the profits from investments as compensation, or carried interest.
Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said Jan. 18 that he plans to reintroduce legislation that would tax carried interest at ordinary income rates.