U.S. Treasury Department makes concessions, plans to revise sovereign wealth fund tax proposal after warnings from private equity industry

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The US Treasury is making concessions on a proposal for a comprehensive reform of the taxation methods for sovereign wealth funds and public pension funds.

The relevant proposal was previously put forward by the Internal Revenue Service and aims to update Section 892 of the tax code, classifying most US debt investments held by these funds as commercial activities, which would put them at risk of being taxed. Investments not recognized as commercial activities would not be subject to taxation. In addition to reclassifying debt investments as commercial activities, the proposal also plans to adjust real estate investment rules and revoke a veto right these funds currently have over capital expenditures.

Previously, private credit and private equity firms warned that the reform could negatively affect foreign investment in the US market.

A spokesperson for the US Treasury recently stated that government officials made their decision after listening to feedback from the investment and real estate industries. "We are revising the proposal to address key issues and ensure it supports stable, long-term capital flows."

Bryan Corbett, President of the Managed Funds Association, expressed appreciation for the Treasury's decision and said the organization looks forward to working with the Trump administration to seek solutions.

Data from tracking agency Global SWF shows that the assets managed by sovereign wealth funds and public pension funds globally exceed $40 trillion, a significant portion of which is invested in the US. The American Investment Council, one of Washington’s main private equity lobbying groups, estimates that sovereign wealth funds will contribute about 35% to total private equity asset growth in 2025.

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