Leon Black recently posed a question whose answer will determine how profitable the new U.S. tax regime could make Wall Street firms like his Apollo Global Management LLC.
Publicly traded partnerships, such as Apollo, are taxed differently than corporations. So should Apollo take advantage of the overhauled tax rules to pay less in taxes? Or should it use this chance to change to an Inc. from an LLC, which would increase its tax bill but allow it to attract investments from mutual funds that have previously been out of reach?
"We're still analyzing,'' Mr. Black told the Goldman Sachs U.S. Financial Services Conference Dec. 6. "It's an uncertain outcome.''
Either way, it's most likely a money-making outcome. The tax changes are a boon for private equity firms such as Apollo, where Mr. Black is chief executive officer. The new lower corporate rate has made it possible for bigger publicly traded partnerships to consider the change. As it is, management fees, which typically account for 30% or more of earnings, are already taxed at the corporate rate. That will drop. The legislation scarcely touched the 23.8% rate paid on incentive fees, also called carried interest, which incur no additional levy when paid out to shareholders.