President Obama has decided to take aim at hedge funds as a new stream of revenue by eliminating a “carried interest” tax break that could mean a lot of money for a market that holds $1 trillion in assets. Hedge fund managers, who saw the market underperform by a reported 88% in 2012, are now looking for new investment opportunities and it appears they think housing and real estate is the hot ticket. Hedge funds are buying up property of all kinds all over the country, particularly in trending market areas like Florida. For more on this continue reading the following article from JDSupra.
Last year was not a good year for hedge funds, at least according to reports by experts like those at Goldman Sachs, where their own David Kostin is quoted in the media as having hedge funds underperforming at 88%. That's a big number.
Hedge Funds Underperformed in 2012
Given that David Kostin is the Chief US Equity Strategist for Goldman Sachs, his report should be respected by those considering hedge funds and their future success in 2013 and beyond.
Hedge Funds May Lose Carried Interest Tax Rate (20%) This Year
Another big piece of bad news for hedge funds: right before the Super Bowl, President Obama announced that hedge funds may be losing a big tax break that gives them a sweet 20% tax rate on lots of their income via the "carried interest" tax rule. Apparently, President Obama is considering getting rid of the "carried interest" tax break that hedge funds enjoy because it will be another federal tax revenue stream for those that see the "carried interest" tax rate as a FIT loophole.
For a nice explanation of what the Carried Interest tax benefit is to hedge funds, check out this article and its accompanying visuals at the Tax Policy Center, "Business Taxation: What is carried interest and how should it be taxed?".
Given that U.S. Hedge Funds manage approximately $ 1 Trillion in assets, what is happening to Hedge Funds is important to anyone watching the U.S. Economy, much less the Florida state of affairs; however, there's more news that really makes the future of Hedge Funds important to Florida land developers and Florida real estate investors.
Hedge Funds Fierce Buyers of All Things Housing: Land, Foreclosures, Even Construction Suppliers
According to a CNNMoney investigation this week, it seems that American hedge funds (along with private equity firms) are almost entranced by all things housing. Apparently, hedge funds are zooming into various parts of the country to buy up undeveloped land as well as anything else in the path of housing: from the raw land to the companies that provide tools and labor to get the properties built and finished out.
Who did they check with on this Hedge Fund Frenzy? One expert was hedge fund manager John Paulson, who is reported to be buying undeveloped land in those parts of the country where the housing crisis has been the worst (yes, that means Florida).
NY Hedge Funds Moving Their Office to Sunny Florida
Meanwhile, in a New York Post article from last week, several hedge fund honchos were interviewed about what appears to be a massive shift of Hedge Fund relocations to Florida. Why? According to Thalius Hecksher, global development chief for Apex Fund Services, "Florida is a state of choice."
U.S. Hedge Funds, underperforming in past years and threatened by a loss of a major tax benefit by the Obama Administration, are grabbing up investments in all aspects of the housing industry: raw land, foreclosed properties, companies that work construction, etc. -- and this means that they're buying up Florida housing as well as, for New York City hedge funds, relocating to the Sunshine State.
This article was republished with permission from JDSupra.