Morning Coffee: $1.7m consulting partners giving offspring preferential internships. Sidestepping the carried interest tax
If you're a partner at Boston Consulting Group (BCG), you're not badly off. Last time we looked, partners at BCG in London were averaging around $1.7m each a year. When your parent earns this amount of money, you're probably well-placed to become part of the global elite: chances are that you've been privately educated, are well-connected and have the ineffable quality of "polish."
What you won't be, is eligible for the sorts of diversity programs designed to help students from low income and other backgrounds into jobs. But this doesn't matter, because at Boston Consulting you'll be eligible for something else. Something called the "Bruce Henderson Summer Programme," for children of managing directors and partners.
The Financial Times reports that the programme, which includes office tours, dinners and instruction on “strategic consulting basics” has been causing upset within BCG. "They basically made it a bit of a holiday for the partners’ kids who came over,” complained one BCG employee. Others noted that it made a mockery of BCG's commitment to help students from low income families, and of its pledge to reduce carbon emissions by reducing employee flights given that children of senior staff had been "flown to London for a fun day."
Most students applying for a job at BCG have to compete against 40 others for a role, but BCG insiders say the Bruce Henderson Summer Programme (named after BCG's founder) is a shoo-in for children of top staff. Their parents covered the costs and BCG people reportedly spent two months preparing the programme on a voluntary basis. It's not clear whether this preparatory work was undertaken by partners and MDs whose children were participating, or whether other consultants volunteered their time in an attempt to ingratiate themselves with bosses. Either way, it's only a small leap from there to an organization where getting ahead depends upon hiring the boss's son or daughter and making sure they're given maximal opportunities to get ahead.
Separately, as a new tax on carried interest payments comes hurtling down the pipes in the US, consideration is already being given on how to avoid it.
Some people are all for the new tax: hedge fund manager Bill Ackman has called the current preferential tax treatment of carried equity, “an embarrassment;" Michael Bloomberg, has said that even people in the industry think it's a "joke." However, with carried interest payments starting at $3.7m a year for principals in mid-sized funds, taxing them as income (37%) rather than capital gains (20%) could result in losses to individuals starting at over $500k a year.
A thread on forum website Wall Street Oasis has already been devoted to ways of avoiding the new tax, with several people hoping that structurers will find get-outs. There are suggestions that holding investments for 5+ years will lead to exemption and that carry would therefore simply need to be rolled into a new fund were it realized before that. Alternatively, it's thought maybe that carried interest could be tied to general partners' co-investment income such that it's part of the original investment and is therefore subject to capital gains.
If you want to work in private equity and to avoid tax on carried interest though, the surest way of achieving this might simply be to emigrate. Carried interest is still taxed as capital gains in Europe, for the moment.
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