Latest news with #SteveSchwarzman
Yahoo
22-05-2025
- Business
- Yahoo
‘Money grab': Why Wall Street donors are sweating the tax bill
Wall Street philanthropists — including some major supporters of the GOP — are about to get hit with a big tax bill if House Republicans get their way. Large charitable foundations overseen by industry heavyweights like Blackstone Group's Steve Schwarzman and Citadel's Ken Griffin could soon see their tax rates double or even triple under the 'big, beautiful bill' that House leaders are pushing to the floor. Industry representatives and nonprofit groups say the looming tax hike on private foundations represents a threat to private philanthropic efforts that they say Republicans should be elevating, rather than punishing. 'The foundation world fills many gaps,' Kathy Wylde, the president and CEO for the Partnership for New York City, a nonprofit organization that represents the city's top business leaders. 'To discourage investment is counterproductive to the president's goals of getting some of these functions into the private sector and out of government.' The plan to raise tax revenue from philanthropic organizations established by top financiers underscores the ascendance of Republican lawmakers who are wary of Wall Street's long-held influence over party leadership. While the overall bill is projected to benefit top earners, its targeting of private foundations — along with provisions that raise taxes on college endowments and establish new levies affecting nonprofits — reflects populist frustrations with tax-exempt entities that are perceived as having boosted progressive causes. But zeroing in on those organizations — which include family-run nonprofits that are used to fund hospitals, religious organizations and charter schools — also risks frustrating the party's traditional allies within the industry. Leon Cooperman, the billionaire investor and philanthropist, said the GOP's budget bill misses the mark, and that he expects the tax hit on private foundations to dent philanthropic efforts. Cooperman, a longtime Republican donor, established a tax-exempt family foundation in 1982 that has contributed hundreds of millions to charities, hospitals and educational institutions. 'The government continues its policy of tax and spend rather than focus on expense reduction. We don't have a revenue problem but rather an expense problem,' he said in an email, later adding that the tax hit on large private foundations 'won't effect [sic] me but I think [it will] adversely effect [sic] giving.' The bill — written to deliver on President Donald Trump's tax, border and energy priorities — would charge private foundations higher excise taxes on investment income based on their size. Institutions with between $50 million and $250 million of assets would be charged 2.8 percent, those with more than $250 million would be charged 5 percent, and those with $5 billion or more would be charged 10 percent. The tax rate on smaller institutions' investment gains would remain unchanged at 1.4 percent. The overall cost of the Republican legislation is likely to be enormous. Estimates from the Yale Budget Lab and Penn Wharton Budget Model project that the current framework would add $3.4 trillion to the debt over the next decade, and holding onto any new revenue sources has been a priority for Republican leaders looking to fend off a revolt from deficit hawks. The Joint Committee on Taxation estimates that the new foundation taxes would raise close to $16 billion over the next decade. Members of both parties have been skeptical of the influence wielded by major private foundations and how they might be used or fund political efforts. Private philanthropies launched by the Clinton and Trump families have long been treated as political punching bags — Trump's foundation was eventually dissolved by New York authorities — and populist lawmakers have frequently made mincemeat of tax-exempt groups that they say improperly padded their coffers. Still, the House GOP's push to raise billions through new taxes on foundations has chilled leaders of groups who helped steer the wealthy's philanthropic efforts into endeavors that are traditionally aligned with the right. 'They're looking at the elites versus the non-elites. There's a lot of money in foundations who would be defined as the elite, and therefore they like to see that money go elsewhere,' said Lawson Bader, the president and CEO of DonorsTrust, a donor-advised fund and 501(c)(3) that's a powerful force in Republican fundraising circles. This 'seems to be really nothing more than a money grab that is — I think — tinged with some political DNA that has me uncomfortable.' Nevertheless, the private foundation tax is broadly expected to be included in the House bill upon passage. Two tax lobbyists, who were granted anonymity to discuss the negotiations around the bill, said they expect larger foundations to step up their outreach on Capitol Hill in the coming weeks to try to deter Senate Republicans from including the provision in their bill. Washington advocacy organizations representing nonprofits, including the Philanthropy Roundtable and Council on Foundations, have been pushing back publicly on the new levies. While the tax hike takes the biggest swing at large foundations — think major philanthropies like the Gates Foundation or George Soros' Open Society Foundations — nonprofit advocates are warning that smaller foundations may be forced to curtail grants or gift giving to prepare for a steeper tax bill. 'They see the ripple,' said Jenn Holcomb, the vice president of government affairs and legal resources at the Council on Foundations. 'They know this is going to have a broader impact beyond just private foundations.' Ridgway White, the president and CEO of the Charles Stewart Mott Foundation, said his Flint, Michigan-based foundation may have to cut back support for local organizations if its investment income is taxed at much higher rates. 'The unfortunate thing is that the dollars being taxed aren't going to come back to communities like Flint,' said White, whose 99-year-old organization had roughly $3.7 billion of assets as of 2023. 'That would mean that there's less programs for after school, less money to support maintenance of parks — it's across the board — less money going into our cultural center, institutions, Catholic Charities, food bank, warming centers, food pantries. Across the board.' 'The Mott Foundation has, over time — if you account for inflation — granted $9 billion to our local community and communities across the world,' he added. 'I would argue that that benefit far exceeds any kind of tax benefit that was received by C.S. Mott in 1926.' CORRECTION: Correction: A previous version of this story misstated the origins of the Partnership for New York City.
Reuters
12-05-2025
- Business
- Reuters
Breakingviews - Private credit's mass appeal creates new risks
LONDON, May 12 (Reuters Breakingviews) - Advocates for private credit like to tout a key advantage over banks: locked-up money. Depositors at old-school lenders can flee in a panic, as Silicon Valley Bank found in 2023, exposing a mismatch between flighty funding and hard-to-sell investments like business loans. By contrast, the backers of direct lending vehicles commit money for years, making a cascading run impossible. A fast-growing part of the $2.2 trillion private credit universe, though, muddies the waters somewhat. Leading firms like Blackstone (BX.N), opens new tab, Apollo Global Management (APO.N), opens new tab and others have collectively raised nearly $300 billion from private individuals, according to PitchBook data, in large part thanks to the popularity of so-called evergreen vehicles, which offer investors the ability to redeem some cash. The structure is still much more robust than the traditional bank funding model, but the nascent private-credit retail boom introduces new risks. Evergreen vehicles are hot, especially in the debt world. The Blackstone Private Credit Fund, known as BCRED, had $81 billion of assets under management on March 31, compared with $45 billion three years earlier. It shovelled nearly $1 billion of management fees to Steve Schwarzman's firm in 2024. Last year, private debt managers raised $67 billion through such vehicles, or roughly a third as much money as they raised from mainstay institutional backers like pension plans or charitable endowments, PitchBook reckons. Similar products are now sprouting up across Europe, including the $3 billion Ares European Strategic Income Fund. The new breed differs from classic private credit in three ways. First, evergreens are perpetual, meaning that managers pour the proceeds from old investments into new opportunities rather than handing the money back to investors ahead of a set expiration date. Second, the vehicles' backers can pull cash at will rather than having it all locked up for years, though redemptions are typically limited to 5% of net asset value per quarter. This liquidity helps explain the third key difference: mass appeal. Investors in evergreen funds include the workaday rich, who generally like to know they could get a bit of money back if they need it. The typical customer would access BCRED and other products through wealth advisers at Morgan Stanley, UBS and elsewhere, though CEOs like Apollo's Marc Rowan are keen to expand the target audience to include retail investors with a 401(k) savings plan. Evergreens have downsides. For one, managers lose control of when they invest. Perpetual funds, by definition, should ideally have all their money at work at any given moment, meaning they need to make loans as soon as cash comes in, while potentially sitting tight when investors redeem. As the Bank for International Settlements has argued, this may weaken, opens new tab one of private credit's innate advantages: the ability to deploy capital when others won't. That was particularly evident after the pandemic and 2022 rate-hike cycle, in which direct lenders seized, opens new tab market share from banks that were stuck with unsold buyout loans. The private-credit sector has delivered positive returns every year since 2010, with a 9.4% annual average over that period, according to Breakingviews calculations using MSCI Index data. To the extent that this performance comes from opportunistic timing, evergreen investors may lose out. Another worry is that redemptions could ripple across private-credit markets during a crisis. Since funds own hard-to-trade assets like buyout debt, evergreen vehicles could struggle to get a good price if they had to sell fast to meet withdrawals. That may cause loan prices to fall more broadly. A sector that has prided itself on being a corporate-funding backstop could thus become the source of a problem. And since private-credit valuations aren't always transparent, investors may be more prone to yank their funds if they doubt those marks. Industry advocates have strong arguments in response. With redemptions generally capped at 5% of net asset value per quarter, or 20% per year, fire-sales may not be necessary. Assuming a fund has spread its bets evenly among a pool of five-year loans, a fifth of the assets should pay back each year, meaning the vehicles could meet the maximum investor repayments without having to sell anything. Managers generally expect investments to turn over every three or four years, providing an even bigger buffer. They could also meet redemptions by drawing down bank loans or using cash and cash-like investments. The industry's defence is backed up by a relatively robust performance. Evergreens were still nascent in the 2020 pandemic panic. But those that were around, like Blue Owl's Owl Rock Capital 2, coped with redemption requests. Nor did rate hikes and falling markets in 2022 trigger a meltdown: Fitch Ratings reckons the top funds saw redemptions peak at less than 3% of equity capital in the first quarter of 2023. There's also no evidence yet of mass withdrawals following the April 2025 market volatility. Still, the industry's rapid growth risks bringing flightier investors into the fold. The danger is that persistently large redemption requests in a crisis, while not an immediate death sentence, mean that managers can't realistically make new loans, denting returns and effectively tipping a vehicle into slow-motion decline. Another risk is that firms struggle to deploy all the funds they're raising and so reach for riskier or harder-to-trade assets, like subordinated debt. That could lead to unexpected losses, spooking investors and making it harder to honour redemption requests. Already, private credit shops are racing to deploy over $400 billion of unspent capital, according to Preqin. In other words, evergreen's rising popularity may be leading to a future with less sophisticated investors alongside riskier lending practices. It won't create anything as dramatic as a bank run, but managers will have to stay disciplined to avoid falling victim to their own success. Follow @Unmack1, opens new tab on X
Bloomberg
17-03-2025
- Business
- Bloomberg
Blackstone's Baratta and Chae Join Schwarzman as Billionaires
Steve Schwarzman and Jon Gray have long been the public faces of Blackstone Inc. 's billionaire elite, but more of the buyout giant's top brass are fitting that description these days. Joseph Baratta and Michael Chae now have fortunes of more than $1 billion each through the world's largest alternative-asset manager, according to the Bloomberg Billionaires Index, expanding a small group of executives at Wall Street firms joining their founders among the mega-wealthy.
