Rachel Reeves’ plans to tax private equity partners more heavily are reasonable and fears they will cause an exodus of dealmakers from London have been exaggerated, a private equity executive has said.

Rami Cassis, chief executive and founder of private equity firm Parabellum, has thrown his support behind the chancellor’s plans to align carried interest – known as ‘carry’ – with capital gains tax , provided that partners who do not finance 10 percent percent of the fundraising from their own capital.

“I’m not sure what Reeves’ final position is, but I could see some sense in equity being treated … more onerously,” Cassis said. City AM. “In my mind, if we’re objective about what equity is, it’s not that different from an executive bonus that employees receive when they perform and meet their goals, (and) that is taxed at the income tax rate.”

What is transportation?

Carry is one of the primary ways private equity partners pay themselves and is taken from a private equity fund’s profits after investors have received their return.

But unlike performance-related bonuses paid in other areas of finance, carry is taxed as capital gains at a rate of 28 percent, which is considerably lower than the income tax rate of 45 percent. cent which applies to performance-related bonuses in other areas of finance. .

Labor has pledged to close what it called the “carried interest tax loophole” in its pre-election platform, saying the move would raise up to £500 million for the public purse.

But the plans have caused considerable concern in private markets, with trading giants like La Liga and Six Nations investor CVC Capital Partners warning against the change, and Jonathan Blake of Herbert Smith Freehills comparing the he effect it would have to that caused by Brexit. .

Cassis’ comments are at odds with those of many in his industry, but his proposal, which would keep the tax rate favorable to bosses who risk their own capital in funds, is similar to the latest reports released by the Treasury.

In June, Reeves signaled that Labor would extend softer tax treatment to executives when fund managers put their own capital at risk.

“If an investor or private equity professional invested their own money… that, in my opinion, would encourage more entrepreneurial behavior and less financial engineering,” Cassis said, adding that it would encourage real wealth rather than to strengthen the company’s accounts. and ship it without creating wealth.

“While there are private equity firms that are genuinely trying to drive growth, there are others that claim they are driving growth, but you can tell they’re not doing it because the “The first thing they do is overload the company with debt, and it’s all about cutting costs and increasing EBITDA (earnings before interest, taxes, debt, depreciation and amortization),” he said. he added.

Fears of a private equity exodus ‘are overblown’

The dealmaker, whose buyout firm invests in enterprise software and business services companies, also said warnings of an exodus of private equity firms from London, which is traditionally a hub for the sector, would not materialize.

“I think these concerns are overblown,” he said. City AM. “I’ve traveled abroad a lot and London has a lot of appeal as a hub. “(It is) a truly international city that offers phenomenal quality in education, infrastructure, legal system and investment opportunities.”

And responding to fears that Milan could supplant the British capital as a hub for new funds if Reeves’ tax plans for the sector come to fruition, Cassis said: “London is also the gateway to the United States . Good luck trying to make a deal with the US from Milan. The UK market is something America understands. This is not the case for Italy or France. I can tell you that aside from fashion, there’s not much else going on in these industries.