Fundsters, be warned that tax reform may dramatically affect the economics of your frequent acquirers.

Last week President Donald Trump's administration unveiled its nine-page "Unified Framework for Fixing Our Broken Tax Code". One piece that fundsters and other asset management industry executives should pay close attention to is the proposal around interest expenses, which amounts to a mere two sentences:

The deduction for net interest expense incurred by C corporations will be partially limited. The committees will consider the appropriate treament of interest paid by non-corporate taxpayers.

As the WSJ notes in its tax reform coverage, the private equity industry "relies heavily on debt financing." If it becomes harder for them to deduct interest on that debt, that would affect the profitability of private equity deals and thus private equity players may be willing pay less for their purchases. And private equity players have been frequent buyers of asset managers.

On the flip side, fundsters and other businesses may be excited for other proposals in the Trump administration's tax reform framework, proposals like a lower corporate tax rate (boosting both fundsters' own profits and the profits of the companies they invest in, which would likely boost fundsters' AUM). 

Edited by: Neil Anderson, Managing Editor


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