May 17, 2007 | Read Time: 1 minute
The Senate Finance Committee has started private discussions about whether to change the tax rules for some types of hedge funds — a development that could affect the makeup of endowments at some of the country’s largest foundations and universities. Committee aides have been looking at the structure of offshore hedge-fund investments by major universities such as Harvard, Stanford, and Yale, says Mark Heesen, president of the National Venture Capital Association and one of the people who has recently discussed hedge-fund tax rules with committee aides. Some large foundations also invest in offshore hedge funds.
Under current laws, institutions are able to use so-called blocker companies overseas to convert taxable profit from hedge funds into dividends, which are not taxed.
Discussions over whether to change the rules for such transactions is only part of the Finance Committee’s inquiry, and Mr. Heesen says it is still unclear whether the committee will ultimately recommend any change.”They’re casting a very wide net at this point, looking at possible revenue raisers,” Mr. Heesen says.
A spokeswoman for Sen. Max Baucus, Democrat of Montana, the committee’s chairman, says the discussions about hedge funds remain “in the early phases” and that the talks are not limited to these offshore funds.
Any changes in the law could have an impact on the investment strategies and returns for endowments at foundations and universities. A forthcoming Chronicle survey of endowments held at 268 nonprofit groups has found that among groups with endowments greater than $1-billion, hedge funds account for a median of 18 percent of their portfolios. At the wealthiest colleges and universities, the median investment in hedge funds is 20 percent of their portfolios, according to the survey.
