PitchBook Analyst Note: New Horizons for PE
The latest analyst note from PitchBook's research team compares corporate structures' particular advantages and disadvantages for private equity firms.
• Spurred by new US tax laws, Ares has become the first public PE firm to convert from a partnership to a C-Corp, potentially opening the door for other firms to make similar moves.
• By switching to a C-Corp, the shares of PE firms could become eligible for indices and gain exposure to new investors by being included in retail products, potentially leading to higher valuations. Other firms will be closely watching developments with Ares’ stock to see how investors respond to the switch.
• However, changing to a corporate structure means that performance-related income will be taxed at the corporate rate before being distributed to shareholders. As such, firms that make the switch are likely to resemble Ares, with a relatively higher proportion of management fees compared to performance fee.