We reported earlier this week that K Street’s biggest financial players are urging the Treasury Department to assuage their concerns with the executive compensation limits that were added to the new stimulus law by Senate Democrats.
But Bloomberg adds an interesting wrinkle in its story today on the narrow room for Treasury to maneuver around the new compensation caps:
It’s unclear whether the rules will apply to Public-Private Investment Fund, the Treasury’s effort to remove the toxic assets clogging banks’ balance sheets. The fund would offer government financing to help induce private investors such as hedge funds to purchase illiquid securities.
It’s understandable that the executive-pay caps’ applicability to hedge funds would be uncertain — after all, their involvement in Treasury chief Tim Geithner’s new public-private fund has yet to be fully determined. But Geithner has committed to spending some amount of taxpayer money in an attempt to coax private equity giants into buying devalued, mortgage-backed assets.
Whether or not that public money comes as part of the Troubled Assets Relief Program, it seems that the new executive-compensation limits are intended to apply to hedge funds who participate. Congress even included a sliding scale (read about it here) that would limit the pay caps based on how much each company received in taxpayer-funded benefits. If private equity succeeds in wiggling around the rules, one suspects that banks not participating in the TARP’s capital purchase program will be next.
