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Private equity firms have amassed $1tn in ‘carry’ fees as taxation debate mounts
The world’s largest private capital firms have avoided income taxes on more than $1 trillion in incentive fees since 2000 by structuring the payments in a way that subjected them to a much lower levy. Such performance fees have for years drawn political scrutiny in the US and Europe and face a wave of renewed calls to close what prominent politicians characterize as a “loophole.” (Financial Times - free link | Jun 12)
What the Fed’s rate-cut delay means for the US and the World
The US Federal Reserve and its vast global audience thought 2024 would be a rate-cut bonanza. But with inflation proving stickier than almost anyone predicted, those expectations are fading fast. Fed Chair Jerome Powell confirmed as much on June 12, when he and his fellow policymakers signaled there would be just one cut in 2024 and forecast more for 2025, reinforcing policymakers’ calls to keep borrowing costs higher for longer to suppress inflation. (Bloomberg Economics | Jun 12)
Bond investors are paying up again for active fund managers
A rocky stretch in the debt markets has American savers turning to Wall Street pros for help picking their bonds. About $105 billion has flowed into actively managed fixed-income funds on a net basis this year, compared with $74 billion for funds that choose investments by tracking an index, according to Morningstar Direct data as of April 30. That marks the first time flows into active bond funds topped those into passive funds during the period since 2021. (The Wall Street Journal | Jun 11)
IMF warns US on ballooning fiscal burden
The IMF’s second-in-command has urged the US to shrink its mounting fiscal burden, saying strong growth in the world’s largest economy gave it “ample” room to rein in spending and raise taxes. Gita Gopinath, the fund’s first deputy managing director, said it was time for advanced economies to “invest in fiscal consolidation” and address how they plan to bring debt burdens back down to pre-pandemic levels. (Financial Times | Jun 8)
Zombies: Ranks of world’s most debt-hobbled companies soar. Not all will survive.
Companies so laden with debt that they are just stumbling by on the brink of survival, barely able to pay even the interest on their loans, zombies are often just a bad business hit away from dying off for good. An Associated Press analysis found their numbers have soared to nearly 7,000 publicly traded companies around the world — 2,000 in the United States alone — whiplashed by years of piling up cheap debt followed by stubborn inflation that has pushed borrowing costs to decade highs. (Associated Press | Jun 7)
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