DealBook Briefing: How Hedge Funds Found a New Tax Loophole

Good Thursday morning. Steven Mnuchin is promising to quickly shut down hedge funds’ latest tax dodge. Where stock and bond investors disagreed on inflation. And Nestlé hinted that it may eventually sell its L’Oréal stake. Just in: Peter Thiel is moving his home and his Founders Fund to L.A., and has considered resigning from Facebook’s board.

Hedge funds have been creating scores of shell companies to get around new restrictions on carried interest payouts, which are taxed at 20 percent instead of the higher individual rate.

The tax overhaul requires funds to hold onto investments for three years to qualify for the lower rate. They’ve been getting around it by creating single-member LLCs in Delaware to receive carried interest payouts.

More from Miles Weiss of Bloomberg:

Steven Mnuchin has promised moves to close the loophole within two weeks.

Elsewhere in taxes: President Trump backs a 25 cent increase in gas taxes for infrastructure spending. Cisco will repatriate $67 billion in overseas profits after the tax overhaul.

And elsewhere in hedge funds: Yesterday was 13F day: Here’s what the big firms invested in.


Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Amie Tsang in London.


Asian and European stock indexes are up this morning. So are S. & P. 500 futures, indicating a strong open.

And in the bond markets? Ten-year Treasury yields are at a four-year high.

Why? The Bureau of Labor Statistics’ inflation report was higher than expected. But weaker retail sales tempered those fears — at least for equity investors.

What economists think: “The risk is now that the Federal Reserve pencils in four rate hikes [for this year] when it meets in March,” Peter Hooper, the chief economist at Deutsche Bank, told the FT.

Peter Eavis’s take

To some, the bond market is a particularly prescient predictor of economic trends. So is it picking up on an inflationary surge that the Federal Reserve likely will take too long to recognize?

But the overheating fears may be overdone. Yesterday’s January inflation report was hardly conclusive. Michael Feroli, an economist at JPMorgan Chase, said that the January increase “probably overstates the underlying trend.”

Still, even though there are reasons to believe that while the U.S. economy is breaking out of its recent rut — thanks to big tax cuts and a revival of the global economy — it may not be as vibrant as it looks.

The economic flyaround

• Reasons for doubt about the Trump administration’s economic optimism. (Upshot)

• How Harvard and others bet on markets staying calm. (WSJ)

• The stock market should be cheaper, argues Eduardo Porter. (NYT)

If Nestlé won’t expand its holdings in the cosmetics giant beyond 23 percent, as its C.E.O. said during an earnings report today, that leaves one logical place to go. (Caveat: Selling might make Third Point’s Dan Loeb happy, but Nestlé doesn’t want to rush and lose out on L’Oréal’s sales growth.)

Nestlé added that its future is likely to contain more deals in the several-hundred-million range of the Blue Bottle Coffee takeover. “The sweet spot is in small to mid-sized deals, but we don’t want to rule out anything,” its C.E.O., Mark Schneider, said.

The deals flyaround

• The Goldman Sachs bankers who helped Amazon buy Whole Foods Market feared that the Trump administration would squash the deal to spite Jeff Bezos. (BI)

• Fox’s bid for control of Sky may hinge on Rupert Murdoch’s character. (Bloomberg)

• Thomson Reuters’ chairman has reservations about his company’s $17 billion deal with the Blackstone Group. (WSJ)

• Was Broadcom wise to offer a big antitrust breakup fee in its Qualcomm bid? (Gadfly)

• Tax authorities have requested documents from lenders and investors in real estate projects managed by Jared Kushner’s family, an unnamed source says. (Bloomberg)

• Rebekah Mercer wrote in an op-ed that Steve Bannon had taken Breitbart in the wrong direction, and it could expand its influence without him. (WSJ)

• The F.C.C.’s inspector general is investigating whether its chairman, Ajit Pal, timed deregulatory moves to benefit Sinclair Broadcasting. (NYT)

• Senators agreed on an immigration proposal, one of a sort that President Trump has threatened to veto. (NYT)

• After Mr. Trump’s personal lawyer declared that he himself had paid $130,000 to the pornographic actress Stormy Daniels, he faces questions about ethics and breach of contract. (NYT)

• More than 130 administration officials — including Ivanka Trump, Jared Kushner and the White House counsel, Don McGahn — lacked permanent security clearance as recently as November. (NBC)

• Fannie Mae is seeking $3.7 billion from the Treasury Department after reporting a $6.5 billion loss for the fourth quarter. (WSJ)

• The E.P.A.’s chief, Scott Pruitt, said he had traveled in first class and on military jets for security reasons. And read about a loophole in emissions regulations for trucks favored by backers of the Trump administration.

Here’s what Dara Khosrowshahi said of the company’s deep-pocketed new backer yesterday at Goldman Sachs’s annual tech conference: “Rather than having their capital cannon facing me, I’d rather have their capital cannon behind me, all right?”

He added that SoftBank’s Masa Son “is a visionary — if a visionary wants to make a bet on you, let’s make it happen.”

He also offered this ambition: “I want you to be able to take an Uber and get into the subway — if the trains are running on time, you’ve got real-time data — get in the subway, get out and have an Uber waiting for you for right now. Or know that there’s a bike right there for you that gets you where you’re going in the fastest manner.”

• Amazon will work with Bank of America on small-business lending, unnamed sources say. Its Washington lobbying operation has become formidable. And it’s planning 2,000 new hires in France.

• Mark Zuckerberg has accelerated sales of his Facebook stocks to fund the philanthropic Chan Zuckerberg Initiative. (Recode)

• Google’s Chrome browser will block some online ads. Critics say the choice of which types to block is self-serving. (WSJ)

• Snapchat said it would let creators of “Official Stories” see analytics about the performance of their work. (Axios)

In the latest White Collar Watch column, Peter Henning considers the potential benefits of a separate regulator for virtual currencies:

Elsewhere in virtual currencies: Charlie Munger thinks Bitcoin is “noxious poison.”

And Bitcoin’s up 12 percent over the last 24 hours, at $9,972, according to CoinMarketCap.

• Elizabeth Warren has written to Wells Fargo about its botched efforts to repay wronged customers. (WSJ)

• Goldman may be having some success in turning around its fixed-income trading unit, but it might do even better by buying Bank of New York Mellon. (Breakingviews)

• Some senior Credit Suisse executives had their secretaries complete compliance training for them. (TheStreet)

• Citigroup has won its first local mandate in Saudi Arabia since returning to the kingdom, advising a budget airline owned by Kingdom Holding on its I.P.O. (Bloomberg)

• One of India’s largest commercial lenders said it had detected fraudulent transactions worth $1.77 billion at just one of its branches, raising fears of a potential ripple effect across Indian banking. (NYT)

• Goldman Sachs named Dusty Philip as a co-head of its global M. & A. team, joining Michael Carr and Gilberto Pozzi. Matt McClure, currently a co-head of Americas M. & A., will replace Mr. Philip as co-head of the global industrials team. (DealBook)

• Deirdre Latour is stepping down as G.E.’s chief communications officer next month. Linda Boff, the company’s chief marketing officer, will be her interim replacement. (G.E.)

— Dana Walden of Fox, on Ryan Murphy’s blockbuster five-year, $300 million deal with Netflix

• State financial regulators in New York said that they would investigate reports that gay men had been denied insurance because they were taking H.I.V.-prevention medication. (NYT)

• Private equity firms are doing more of their own capital markets work, bringing new risks as well as new fees. (WSJ)

• Bridgewater has made a $22 billion bet against some of Europe’s biggest companies, according to filings. (Reuters)

• Lucio Lanza, a longtime venture capital investor, is being sued by the founder of a medical start-up, who accuses him of sexually assaulting her on a plane. (Business Insider)

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