Should Private Funds Have more than $10 Billion?

The current draft of the Dodd-Frank Wall Street Reform and Consumer Protection Act has a surprise in it for big hedge funds. By “surprise” I mean tax.

Title XVI: Financial Crisis Special Assessment has a $19 billion fee ready to be assessed against financial companies institutions with more than $50 billion in assets and hedge funds with more than $10 billion under management. This $19 billion in “fees” is being assessed to support the new government initiatives in the financial reform legislation.

Section 1601(f)(2) leaves up to the new Financial Stability Oversight Council to define a hedge fund (in consultation with the SEC). The amount owed by any particular hedge fund manager will depend on a matrix of contributing factors. Section Section 1601(g) lays out thirteen factors the Council will need to take into account.

Before you start handing money back to limited partners to get under the $10 billion threshold you may want to wait for the legislative process to continue. Senator Brown of Massachusetts is opposed to new taxes and is threatening to withhold his vote. (I didn’t vote for him.) With the death of Senator Byrd, the Democrats need to pull in more Republican votes to get the financial reform bill passed in the Senate.

Update: The Boston Globe is reporting that the $19 billion tax has been removed from the bill: Brown’s Threat Gets Bank Tax Removed.


Image of Money series 2 is by Mokra