Institutional Investor Newsletter

1. House committee proposes key tax legislation

If enacted, the House Committee on Ways and Means’ tax bill, entitled “The One, Big, Beautiful Bill,” could affect certain institutional investors. Among other measures, the proposed legislation would impose elevated US tax rates on US-source income earned by governments or residents of countries that, under the proposed legislation, impose “unfair foreign taxes.” Additionally, the proposed legislation would significantly increase the current excise tax on large private-university endowments. See our client alert for a summary of the proposed legislation. Institutional investors are encouraged to monitor these developments.

2. ESG investing and the diverging paths of Europe and the US

Environmental, social, and governance (ESG) investing is experiencing contrasting trajectories between Europe and the US. European pension funds are intensifying their ESG commitments, with some sponsors choosing to disengage with asset managers who fail to meet their sustainability criteria. In the US, asset managers are approaching ESG initiatives more cautiously, influenced by mounting political pressures. As these regional differences evolve, sponsors will need to navigate this fragmented ESG landscape, balancing local expectations with broader sustainability goals.

3. Navigating outbound investment restrictions

New US restrictions on outbound investment are reshaping fund compliance practices. A January 2025 rule, which implemented Executive Order 14105, prohibits US persons from directing capital into certain Chinese companies involved in sensitive technologies, such as the manufacturing of advanced semiconductors and quantum computing. Some limited partners have since incorporated side letter provisions and enhanced due diligence processes to ensure that fund managers will not invest in blacklisted sectors or jurisdictions. Companies may expect ongoing adjustments to fund documents and monitoring processes as the industry adapts to the evolving outbound investment controls.

4. Continuation vehicles continue to gain traction

The market environment continues to face headwinds – and private equity firms are increasingly turning to continuation vehicles as they seek alternative exit strategies. The volume of continuation and similar general partner-led transactions may continue to grow in 2025, with opportunities for institutional investor participation. Investors are encouraged to understand the unique legal and tax issues these transactions raise.