Keep your friends close and private equity tycoons closer

One thing to start: Wall Street and Washington scrambled to come up with a plan to stabilise First Republic after the ailing lender’s shares continued to plunge on Tuesday.

In today’s newsletter

• Private equity gets political in the UK

• Wall Street lawyers’ lacklustre bonus season

• Vodafone’s board under scrutiny

The Labour party’s private equity charm offensive

Keep your friends close and private equity billionaires closer, right?

That’s the strategy UK Labour leader Keir Starmer and shadow chancellor Rachel Reeves have rolled out. The pair — despite planning to hit the industry with a £440mn tax raid — have decided they’ll have a better shot at getting into power with the masters of the universe on their side.

The duo has held meetings with senior executives from investment groups including Blackstone, Advent International and Brookfield Asset Management in recent months, people familiar with the matter told DD’s Will Louch and the FT’s Jim Pickard, with the aim of bringing more private capital investment into the UK.

The recent talks signal Labour’s embrace of private equity’s increasing presence in the UK, from Clayton, Dubilier & Rice’s £10bn takeover of grocer Wm Morrison to the mega-buyout of Asda to US financier Todd Boehly and Clearlake Capital’s purchase of Chelsea FC.

But if the likes of Blackstone’s Stephen Schwarzman and Brookfield’s Bruce Flatt think they’ll get an easy ride if the Labour party unseats the incumbent government, they’re mistaken.

DD readers might remember a little thing called carried interest — private equity executives’ often-lucrative share of profits on the funds they invest, which can also serve as a handy loophole for how much tax they pay on successful deals.

Reeves has been vocal about closing that loophole, and has accused the industry of not paying enough tax and asset-stripping a “series” of strategically important British businesses including GKN.

The buyout industry remained hopeful it could prevent any change. But a Labour spokesperson told DD this week that the party would include the policy to change carried interest tax rules in its election manifesto, set to be drawn up this year.

For fund managers, this is a big deal. Carried interest payments usually dwarf the salaries that private equity managers earn and can easily run into multimillion-pound payments.

Currently, the payments are classed as a capital gain, so are taxed at 28 per cent rather than at the 45 per cent top income tax rate.

Labour is proposing to change this, netting them an estimated £440mn a year, a change that has divided the industry.

It’s still unclear whether Labour’s charm offensive will pay off and the party will be able to attract the capital it says it needs to grow the economy.

Some private equity executives and advisers concede they’ve been lucky to get away with the favourable tax treatment for so long, while others think the tax increase will make the UK less competitive and add to the Brexit-spurred exodus of private equity executives to continental Europe.

Still, demanding a £440mn cheque is an interesting way to try to make friends.

Corporate lawyers feel the dealmaking slump

Last year was a tough year for corporate law firms. Unless you’re Kirkland & Ellis.

The firm defended its position as the world’s highest-grossing law firm last year, increasing annual revenues nearly 8 per cent to $6.5bn.

The haul comes as its rivals suffered steep profit and revenue drops in the absence of 2021’s rich pipeline of deals, reports the FT’s Kate Beioley.

Partners at Latham & Watkins, the world’s second-highest grossing law firm, had their payouts fall 10 per cent to $5.1mn, according to results filed with industry publication the American Lawyer. Others fared even worse.

Equity partners at Davis Polk & Wardwell took home $5.6mn in profit shares, 21 per cent less than the previous year, while Cadwalader, Wickersham & Taft partners’ profit share plunged 30 per cent.

It was a different story for the 505 equity partners at Kirkland, who took home $7.5mn on average, a slight increase from 2021, which helped the Chicago-based firm eclipse the payouts earned by partners at New York rival Wachtell, Lipton, Rosen & Katz.

Kirkland was buoyed by a business model that acts as a one-stop-shop for private equity: after helping PE clients lever up companies in search of investment profits, they are also there to unwind mistakes made with a growing restructuring business.

It also capitalised on a wave of crypto bankruptcies as partner Joshua Sussberg represented Voyager, Celsius Network, and BlockFi in their administration cases.

Kirkland “doesn’t feel like a law firm, it feels like a hedge fund . . . They talk that way, they think that way, it’s all about maximising revenue and profit”, said Bruce MacEwen, president of law firm consultancy Adam Smith.

But even Kirkland isn’t immune to the darkening economic outlook. It became the latest firm to cut headcount earlier this month as the private equity gravy train shows signs of slowing.

Vodafone’s board structure comes under scrutiny, again

Emirati investment group e& on Tuesday notified the market that it has again increased its stake in Vodafone — this time to 14.6 per cent.

But because of stringent regulatory rules, it also had to make another public admission: it had discussed the “composition” of Vodafone’s non-executive board with representatives from the troubled British telecoms group.

This is the first, albeit somewhat opaque, indication the market has received that e& may be less than delighted with Vodafone, which has lost nearly 30 per cent of its value in the past year. When it first announced that it had built a 10 per cent stake last year, it confessed complete support for the company and its board.

Vodafone has sought to introduce more heft to its board since the start of 2022, when it came under fire from activist investor Cevian Capital for its lack of non-executive directors with telecoms experience.

It has since brought Informa chief Stephen Carter and France Televisions boss Delphine Ernotte Cunci into the mix.

Vodafone still has a number of longstanding non-executive directors, including London Stock Exchange boss Clara Furse, Reed’s former chief Crispin Davis and former Standard Life chief David Nish.

State-controlled e&, keen to transform itself into a technology company and to expand globally beyond the Middle East and Africa, may want a refresh.

Job moves

Senior Citigroup executive Paul Barrett has left the bank, days after the Wall Street Journal reported he had met with the late disgraced financier Jeffrey Epstein on several occasions while working at JPMorgan Chase.

NatWest chair Howard Davies has announced he will step down from his role by the middle of next year.

UBS has hired three Barclays bankers in New York, according to a memo seen by DD: Marco Valla joins as global banking co-head (his predecessor Ros L’Esperance will launch a senior advisory group within the Swiss bank) as well as Jeff Hinton and Kurt Anthony.

Separately UBS chief risk officer Christian Bluhm, who announced plans in November to become a full-time photographer, will stay on “for the foreseeable future” following its Credit Suisse takeover, delaying the transition to newly appointed risk control head of integration Damian Vogel.

Former Salesforce co-chief Keith Block has launched Smith Point Capital with Vista Equity Partners’ Burke Norton and Longfellow Capital’s Chris Lytle.

Paul Hastings has hired Kirkland & Ellis’s John Budetti as a partner in New York and global chair of the investment funds and private capital practice.

Smart reads

Call it a comeback After serving time in prison for bankruptcy fraud, Dan Kamensky has re-emerged as a thought leader offering wisdom to the distressed debt world, DD’s Sujeet Indap writes.

Fumbling finances A series of financial scandals at Juventus have made the club a symbol of the increasingly untenable relationship between football and finance, the Guardian reports.

Friends in high places Real estate mogul Harlan Crow, whose close ties to Supreme Court Justice Clarence Thomas have placed his business into the spotlight, has spent millions wielding influence over Texas politics, Bloomberg reports.

News round-up

UBS set for biggest banking profit once Credit Suisse deal closes (FT + Lex)

Binance US walks away from proposed $1bn deal for Voyager Digital assets (FT)

Switzerland indicts ex-PetroSaudi executives over 1MDB fraud (FT)

Murdoch group settled Prince William phone-hacking claim, UK court told (FT)

Santander’s profits dented by €224mn hit from Spanish windfall tax (FT)