Buzz Archive:
PE Buzz: Dividend Recaps and The Carried Interest

by Joseph W. Bartlett, Founder of VC Experts.com, 6/21/2007

The lower tax rate on corporate dividends, now 15% for Federal Tax purposes, has enhanced the popularity of dividend recapitalizations as a method for the general partners of private equity funds to profit, on an interim basis and prior to the liquidity event, from their portfolio investments. There is, however, growing pushback from the limited partners in buyout funds when the general partner's carried interest in profits bites into the proceeds from a dividend recap. Given this, and the efforts from Congress to raise taxes, one better hurry...