Click here to read The President’s Framework for Business Tax Reform.

Click here to read the Treasury’s Press Release on The President’s Framework for Business Tax Reform.

PRESIDENT OBAMA’S FIVE ELEMENTS OF BUSINESS TAX REFORM

I.Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America: The Framework would eliminate dozens of different tax expenditures and fundamentally reform the business tax base to reduce distortions that hurt productivity and growth. It would reinvest these savings to lower the corporate tax rate to 28 percent, putting the United States in line with major competitor countries and encouraging greater investment in America.

II.Strengthen American manufacturing and innovation: The Framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.

III.Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment: Our tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the U.S. tax base. Introducing a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates.

IV.Simplify and cut taxes for America’s small businesses: Tax reform should make tax filing simpler for small businesses and entrepreneurs so that they can focus on growing their businesses rather than filling out tax returns.

V.Restore fiscal responsibility and not add a dime to the deficit: Business tax reform should be fully paid for and lead to greater fiscal responsibility than our current business tax system by either eliminating or making permanent and fully paying for temporary tax provisions now in the tax code.

In a recent article appearing in the Triangle Business Journal (subscription required), a spokesperson for the treasurer noted that hedge funds were chosen to “diversify the pension portfolio.”  The spokesperson added that the strategy will help to “reduce risk where authorized.”

The North Carolina pension system has maintained hedge fund investments in the past as a separate asset class.  Moving forward, the hedge fund investments will now be spread across the portfolio and not accounted for separately.

North Carolina’s investment move comes as other states, including Rhode Island, have recently moved to hedge funds or increased their allocations.  Rhode Island’s State Investment Commission made the state’s first move toward hedge fund investments.  MFA President and CEO Richard H. Baker also had a letter to the editor published in the Providence Business News (subscription required) highlighting this step for the state’s pension fund.

Efforts are underway in the U.S., Europe, and Asia to enhance regulation of the financial marketplace and a key aspect of these ongoing reforms is the regulation of over-the-counter (OTC) derivatives.  Therefore, while MFA continues to monitoring the global regulatory landscape and being a constructive participant in the development of these reforms, this first entry will provide a brief update on the current state of OTC derivatives regulation generally.

• In the United States, regulatory rulemaking is ongoing in the wake of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  Both the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC) continue to work on many OTC derivatives rules mandated by the Dodd-Frank Act, including rules related to clearing and reporting of derivatives.  In addition, the public comment period recently closed on a CFTC rulemaking related to the trading of OTC derivatives on exchanges or swap execution facilities.  For greater detail on this issue, please see MFA’s recently submitted comments to the CFTC on its proposed rules of “making a swap available to trade.”
• In the European Union (EU), work continues on the European Market Infrastructure Regulation (EMIR) proposal that recently was agreed to by the 27 EU finance ministers.  It is expected that in the coming weeks the European Parliament will vote on EMIR.  Late last month, MFA issued a Whitepaper providing its updated responses to changes in the EMIR text as proposed by the European Parliament and the Council of the European Union.  For a broader discussion of EMIR and OTC derivatives regulation in the EU, watch this video from the Financial Times.
• Singapore and Hong Kong recently issued consultation papers on their proposed regulatory regimes for OTC derivatives.  Earlier this week, Singapore issued its consultation paper, which among other things, proposed mandating clearing and reporting of all OTC derivatives.  In addition, in November 2011, MFA submitted comments to the Hong Kong Monetary Authority and the Securities and Futures Commission in response to their joint consultation paper on proposed regulations in this area.

Check back to MFA’s blog in the coming weeks for more updates with respect to global regulation of OTC derivatives as well as other financial regulations of importance to the alternative investment community.

• William R. Goodell, MFA’s Chair, spoke at a leading financial services conference in Brussels, Belgium, lending an industry voice to the panel discussion that also featured Verena Ross, executive director of the European Securities and Markets Authority (ESMA) and Markus Ferber, a key voice in the European Parliament on market issues.
• The National Association of College and University Business Officers (NACUBO) and the Commonfund Study of Endowments was recently released, showing the steady partnership between hedge funds and university and college endowments.
• MFA President and CEO Richard H. Baker recently had a letter to the editor published in the Providence Business News highlighting the first direct hedge fund investments made by the state’s public pension fund.
• MFA submitted comments to regulators this week in response to the proposed Volcker Rule.  Our comments spoke to many issues including market making.
• New research from Preqin details institutional investors’ interest in emerging manager hedge funds.  The research found that 83 percent of institutional investors that are active – or seeking to be active – in the emerging manager space.

Read the February Policy Brief newsletter here.

Speaking on a panel discussion entitled “Re-thinking the Trading Landscape,” Goodell was joined by Verena Ross, Executive Director of the newly formed European Securities and Markets Authority (ESMA), and Markus Ferber, a Member of the European Parliament who will play a lead role in drafting the legislation and conducting the for the Markets in Financial Instruments Directive (MiFID II).

“The institutions and individuals that invest in MFA’s members support a regulatory framework that will reduce systemic risk, provide enhanced transparency, strengthen investor safeguards, and bolster legal certainty for investors,” said Goodell. “Our aim is to work constructively with policy makers around the globe to accomplish these shared policy objectives in an intelligent, thoughtful manner.”

Read MFA’s full press release here.

Of note from the NACUBO-Commonfund study:

• Smaller endowments are more heavily invested in hedge funds than larger ones.
• According to coverage of the report from HFM Week, Commonfund Institute Managing Director William Jarvis indicated that hedge funds tend to be the first choice for small endowments for three reasons: “they can be funded immediately; the endowment may receive some current income; and the strategies are relatively more liquid than private capital.”
• Per the study, endowments worth $25 million or less allocated about 60 percent of their alternative investment portfolio to hedge funds, while those worth $1 billion or more allocated 38%.
• Returns from hedge fund allocations remained steady, at 9.9% in FY2010 and 9.4% in FY2011.

“Most institutions invest in hedge funds to achieve diversification benefits and to potentially achieve higher returns over the long-term,” Jarvis said, adding: “To have returns in the 9% range in this market is very favorable.”

Click here to learn more about who invests in hedge funds and why they invest.

Network 2012 featured expanded time for delegates to meet and network with other conference attendees.  This, coupled with educational sessions ranging from operational due diligence to risk management and a look at the state of the industry to a preview of MFA’s legislative and regulatory issues in 2012, provided delegates the perfect balance for learning and meeting.  A keynote address by Lord Stanley Fink along with a legislative and regulatory update from MFA’s management and Founders Council members proved to be some of the most popular program sessions of the conference.

Learn more about the Network 2012 program at http://network.managedfunds.org/schedule.asp and see a slideshow of photos from this year’s event below, or click here.  Also, be sure to save the date for MFA’s other conferences this year – Forum 2012 is again at the Fairmont Millennium Park in Chicago, June 12-13, and Outlook 2012 at the Pierre Hotel in New York, October 18-19.