The alternative investment fund industry has much to reflect on at the beginning of this new presidential administration. While discussions can only theorize on what may change, those in the industry should be aware of trends to watch and possibilities to anticipate.

CohnReznick recently gathered industry leaders and advisors for our annual Alternative Investment Fund Summit to discuss current trends, key questions, and recommendations for moving forward in private equity, private credit, hedge funds, and more. 

Our “Hot Topics Impacting Private Funds” panel brought together Tannenbaum, Helpern, Syracuse & Hirschritt’s Michele Gibbs Itri and CohnReznick’s Stacey Schell and Robert Richardt to discuss current issues and concerns in the alternative investment landscape. The conversation covered potential tax policy changes and their implications, as well as proposed tax cuts, the budget reconciliation process, and the Corporate Transparency Act (CTA).

Our top takeaways here offer crucial insights into future priorities for managers of private funds, along with practical action items for readiness and recovery.

Planning for potential policy changes

Much of the panel’s discussion focused on potential tax changes, spending cuts, and other changes the Trump administration may enact. While these are only possibilities and subject to change, it’s important for those in the investment industry to stay agile and plan ahead for greater resiliency. Opens a new windowOpens a new window(Opens a new window)

• Proposed Tax Changes: Potential changes include reducing the corporate tax rate to 15% for domestic activities, eliminating taxes on Social Security benefits, tips, and overtime pay, and expanding the child tax credit. Panelists specifically highlighted possible changes to Section 163(j) of the Tax Cuts and Jobs Act, which currently limits the deductibility of business interest expense to 30% of adjusted taxable income (ATI). This provision has been particularly challenging for private equity funds, as it defers interest expense deductions until there is sufficient income, and potential adjustments would reinstate add-backs for depreciation, amortization, and depletion. 
• Budget Reconciliation Process: To pass these tax cuts, panelists discussed how the administration could use the budget reconciliation process, which requires a simple majority in both houses of Congress. This process is limited to taxes and spending, and it cannot increase the deficit outside of a 10-year window. They also noted that achieving consensus within the GOP will be challenging due to differing opinions on deficits, and that the administration may consider passing some provisions in separate bills to facilitate negotiations.
• Spending Cuts and Efficiency Measures: To further offset revenue losses, potential cuts include eliminating green energy subsidies, reducing the federal workforce and defunding some programs. The panelists noted that while the Department of Government Efficiency (DOGE) was created with the purpose of streamlining bureaucracy and reducing spending, these measures are likely to face significant political opposition and will require extensive negotiation.
• Corporate Transparency Act (CTA): The CTA, which became effective Jan. 1, 2024, mandates most U.S. and foreign businesses operating in the U.S. to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The CTA aims to combat money laundering and tax fraud by increasing corporate ownership transparency. The reporting requirements include names, addresses, and other identifying information of individuals who substantially control these entities. While registered investment advisors and the funds they manage may be exempt, related entities may not be exempt.
  • While legal challenges are ongoing and there is no firm answer on whether the CTA will ultimately be enacted, we recommend staying prepared by establishing a reporting planOpens a new windowOpens a new window(Opens a new window) for your existing entities to fulfill compliance by the deadline if necessary.

Looking to the future

The discussion of current trends and issues facing alternative investment funds highlighted again and again the need for strict compliance and future preparation. While nothing can be certain at this point in time, the new presidential administration’s potential tax policy changes and revenue offsets could both present opportunities for economic growth and pose significant challenges. Overall, the panelists emphasized the importance of being prepared and resilient in times of change. 

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}