Mitt Romney and Man U (and PE management fees) | FT Alphaville

Mitt Romney and Man U (and PE management fees)

It’s an indirect path from one to the other.

Gawker on Thursday unloaded some 950 pages of filings from Bain Capital-affiliated offshore funds in which Mitt Romney has invested his fortunes over the years. We’re still reading through the docs, though Dan Primack (who’s already read through them) thinks there’s not much to the issue.

It’s not hugely specific or smoking-gun stuff so far — Romney as National Enquirer lender! (err) — because of how fairly commonplace financial statements like these work, and because (bluntly) offshore tax havens are a prevalent part of American capitalism. The trappings surrounding the doc dump come across as a little ingenuous.

That said, just for some grounding, the letters from the likes of Sankaty Advisors are interesting as a diverting trip back through Romney’s investments to funds positioning for the great credit rally of 2009. Take this Sankaty presentation, or this letter, wherefrom we take our (tongue-in-cheek) Man U headline:

As we said, it’s diverting. It’s context. And yes, it’s a bit complicated, but not mind-numbingly so.

A wider point, though, is how US political reporting covers the world of finance. We suspect that because of the ostensible complexity, Gawker’s story will likely get boiled down to soundbites about the Cayman Islands, the unglossed evil of derivatives, you didn’t build that alternative investment vehicle, etc.

We’re not political reporters ourselves, but we remain genuinely miffed as to why Romney didn’t just release more of his pre-2010 tax returns a while ago. Even if there is something in them not to like, the issues seems as if it would have simply dominated a few news cycles as part of the inequality conversation and then everyone would have moved on from that specific part of it.

But now the Republican National Convention is about to start, and Romney’s control of the agenda already seems to be slipping uncomfortably — recent Republican outbursts on abortion and immigration have drawn attention to those parts of the party platform — away from the economic issues he’d prefer to be focusing on (and that the country could use a healthy debate about).

And so a story like this, which for the moment appears to be more heat than fire, as Primack puts it, ends up getting more attention than it would if the candidate had been more forthcoming earlier. But maybe we’re missing something.

Anyways, have at the documents yourself.

Update: One of the most interesting, but contentious, bits of the Gawker doc dump is a detail on conversion of this fund’s partners’ management fees into carried interest. The practice enables a change in tax treatment from ordinary income to capital gains (with the 15 per cent rate). Here’s a post by law professor Victor Fleischer questioning the legal basis for management fee conversion, though here’s also the IRS rule which might mean the practice is tolerated.

While the route back to Romney is kind of circuitous, carried interest (which, like much else in the industry has evolved since Romney’s private equity heyday) happens to be another issue where his campaign hasn’t said as much as it could have.

Further update: And here’s one of the first mainstream media takes on the Gawker documents, from the NYT. It picks up on management fees and a few taxation issues (which are still difficult for us to get our heads around, we will admit, because these are offshore funds designed to take non-US money). The Times piece also raises the ‘complexity’ of Bain taking up CDS positions and investing in CLOs. Is it really the complexity that’s the story?

By Cardiff Garcia and Joseph Cotterill