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The One Big Beautiful Bill Act (OBBBA) was signed into law during a ceremony at the White House over the July 4th holiday. Though it contains a number of provisions with delayed implementation, we can now frame our expectations for the impact of the final version of the Bill and how it might shape the investing landscape.
These are the topics we believe are top of mind for private markets investors.
Section 899, the so-called “revenge tax” that was included in the House version of the Bill, was removed from the Senate version at the request of the US Treasury Secretary after the recent G7 Summit. Section 899 would have imposed retaliatory taxes on non-US investors from countries that have enacted certain types of taxes affecting US persons that the US had argued were “unfair.” With the deletion of Section 899 from the final Bill, OBBBA will make no changes to the availability of benefits under either US tax treaties or Section 892, which provides exemptions for foreign governments. Consequently, non-US investors generally should have the same US tax considerations as they did prior to this Bill being passed.
The final Bill does not increase tax rates for private foundations but does increase excise taxes on the investment income of private universities and colleges to up to 8% based on student/endowment ratio (with some carve outs). While this reflects an increase compared to prior law, it is a significant decrease from the House version of the Bill, which would have raised the excise tax on private university and college endowment income up to 21% and increased excise taxes applicable to investment income earned by certain private foundations to 10% (up from 1.39%).
OBBBA extends or makes permanent many provisions from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire at the end of 2025. The highest marginal individual rates will remain at 37% for ordinary income and 20% for preferentially taxed long-term capital gains. The legislation also makes permanent the TCJA’s suspension of miscellaneous itemized deductions, such as investment advisory fees, fund management fees, and tax prep fees. Corporate income tax, which was permanently reduced to 21% in the TCJA and not expiring in 2025, was not affected.
The final Bill extends and expands certain business-favorable provisions from the TCJA, including rules related to deduction and amortization of domestic R&D expenses, reinstatement of 100% first-year bonus depreciation on certain assets, and the 199A deduction for qualified business income, which was made permanent at 20%. In addition, the Bill expands the availability of the business interest deduction.
Favorable changes to investment tax rules include expansion of the Section 1202 capital gain exclusion for “qualified small business stock,” which allows qualified taxpayers to exclude up to 100% of the gain on the sale of corporate stock from federal income taxation. The Bill increases the availability of the benefit by establishing a tiered exclusion, allowing taxpayers that have held stock in a qualified company a reduced benefit for holding periods as short as three years (instead of the five-year minimum holding period under current law) and raises the per-issuer gain exclusion cap from $10 million to $15 million (indexed for inflation). Similarly, the Bill makes permanent the capital gains exclusion or deferral for qualified opportunity zones.
State and local tax (SALT) federal deductions were increased to $40,000 through 2029 (from $10,000), though they are phased out for high earners. The final Bill does not override the “pass-through entity tax” rules enacted by several states in response to the federal SALT limitation, as had been proposed in the House version of the Bill. No corporate SALT deduction cap was proposed in any version of the Bill, so SALT should remain fully deductible against federal corporate tax.
We believe the OBBBA is set to have a varied impact on different sectors of the US economy, with both positive and negative effects from a purely financial perspective. In terms of investing, we see there being both risks and opportunities.
In the energy sector, the impact is mixed. While certain clean-energy technologies such as hydrogen, nuclear, and geothermal will continue to receive targeted federal support, much of the broader clean energy sector faces significant setbacks. The wind, solar, and electric vehicle markets are likely to struggle in the near term, as the phaseout of tax credits and regulatory shifts reduce their investment appeal and long-term viability. On the other hand, oil, gas, and coal companies are expected to benefit from the Bill, with expanded leasing opportunities and reduced royalty rates. Battery energy storage was also spared the fate of some clean-energy technologies, with energy storage credits extended through 2033.
The defense and homeland security sectors are also clear winners. Military manufacturers, defense contractors, and construction companies are likely to see an increase in contracts as a result. The legislation allocates an additional $150 billion for military spending, including investments in the “Golden Dome” missile defense system, shipbuilding, and munitions production. Given the size and duration of these investments, the defense and aerospace industry will likely feel significant tailwinds for some time to come.
The space exploration sector is also set to benefit. For those operating spaceports, the Bill allows such facilities to be treated similarly to airports under the exempt-facility bond rules, significantly reducing capital costs. Broader infrastructure and R&D tax incentives included in the legislation further support expansion and innovation in commercial space operations.
With an array of Medicaid reforms and funding cuts, changes to the provider tax structure, and reduced reimbursement rates, the medical industry as a whole is likely to experience heightened fiscal pressure. Many states will likely struggle to compensate for the loss of federal support, though the newly established Rural Hospital Fund, totaling $50 billion over five years, will offer some targeted relief.
The Bill also introduces new limitations impacting “foreign entities of concern” designation, which defines non-admissible partners and restricts certain suppliers. This expansion may benefit third-country suppliers as the US shifts away from Chinese suppliers.
At the highest level, while there are pro-growth sector-specific opportunities, most projections view this Bill as a pathway towards a number of interrelated cost increases, most of which will likely exert negative pressure on the US economy over the long term.
The Bill is set to increase the bottom-line threshold of US government spending, as immigration and defense spending are now baked into the budget, with no commensurate revenue captured. While estimates on by how much vary, the OBBBA will increase the US deficit. Moreover, the legislation adds further fiscal pressure through a substantial increase in federal interest payments, compounding the overall debt burden.
This increase in the deficit, when compounded with increased tariffs, could lead to higher interest rates. Increased immigration spending, if effective, could lead toward labor shortages that negatively affect agriculture, hospitality, and building industries, to name a few. Similarly, higher tariffs could lead to higher production costs or supply chain shortages, both of which may lead to higher costs passed onto the consumer.
Ultimately, the Bill’s long-term effects will depend on how its provisions are implemented and how industries adapt to the new regulatory environment.
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For investors, more questions remain — from potential increased structural complexity to due diligence and tax planning. In the end, we see a number of short-term, sector specific opportunities combined with potential long-term headwinds. At the very least, the Bill landed in a place that is broadly positive on the business tax front. Its overall impact will depend on the balance between these positive and negative factors, which we will be monitoring closely.
HarbourVest Partners, LLC (“HarbourVest”) is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes; the information should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. In addition, the information contained in this document (i) may not be relied upon by any current or prospective investor and (ii) has not been prepared for marketing purposes. In all cases, interested parties should conduct their own investigation and analysis of the any information set forth herein and consult with their own advisors. HarbourVest has not acted in any investment advisory, brokerage or similar capacity by virtue of supplying this information. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. The information is subject to change without notice and HarbourVest has no obligation to update you. There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.
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“Professional Investor” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (the “SFO”) and its subsidiary legislation) means:
(a) any recognised exchange company, recognised clearing house, recognised exchange controller or recognised investor compensation company, or any person authorised to provide automated trading services under section 95(2) of the SFO;
(b) any intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong;
(c) any authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(d) any insurer authorized under the Insurance Ordinance (Cap. 41 of the Laws of Hong Kong), or any other person carrying on insurance business and regulated under the law of any place outside Hong Kong;
(e) any scheme which-
(i) is a collective investment scheme authorised under section 104 of the SFO; or
(ii) is similarly constituted under the law of any place outside Hong Kong and, if it is regulated under the law of such place, is permitted to be operated under the law of such place,
or any person by whom any such scheme is operated;
(f) any registered scheme as defined in section 2(1) of the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the Laws of Hong Kong), or its constituent fund as defined in section 2 of the Mandatory Provident Fund Schemes (General) Regulation (Cap. 485A of the Laws of Hong Kong), or any person who, in relation to any such registered scheme, is an approved trustee or service provider as defined in section 2(1) of that Ordinance or who is an investment manager of any such registered scheme or constituent fund;
(g) any scheme which-
(i) is a registered scheme as defined in section 2(1) of the Occupational Retirement Schemes Ordinance (Cap. 426 of the Laws of Hong Kong); or
(ii) is an offshore scheme as defined in section 2(1) of that Ordinance and, if it is regulated under the law of the place in which it is domiciled, is permitted to be operated under the law of such place,
or any person who, in relation to any such scheme, is an administrator as defined in section 2(1) of that Ordinance;
(h) any government (other than a municipal government authority), any institution which performs the functions of a central bank, or any multilateral agency;
(i) except for the purposes of Schedule 5 to the SFO, any corporation which is-
(i) a wholly owned subsidiary of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong;
(ii) a holding company which holds all the issued share capital of-
(A) an intermediary, or any other person carrying on the business of the provision of investment services and regulated under the law of any place outside Hong Kong; or
(B) an authorized financial institution, or any bank which is not an authorised financial institution but is regulated under the law of any place outside Hong Kong; or
(iii) any other wholly owned subsidiary of a holding company referred to in subparagraph (ii); or
(j) any person of a class which is prescribed by rules made under section 397 of the SFO for the purposes of this paragraph as within the meaning of this definition for the purposes of the provisions of the SFO, or to the extent that it is prescribed by rules so made as within the meaning of this definition for the purposes of any provision of the SFO.
The first of such classes of additional “professional investor”, under the Securities and Futures (Professional Investor) Rules (Cap. 571D of the Laws of Hong Kong), are:
(k) any trust corporation (registered under Part VIII of the Trustee Ordinance (Cap. 29 of the Laws of Hong Kong) or the equivalent overseas) having been entrusted under the trust or trusts of which it acts as a trustee with total assets of not less than HK$40 million or its equivalent in any foreign currency at the relevant date (see below) or-
(i) as stated in the most recent audited financial statement prepared-
(A) in respect of the trust corporation; and
(B) within 16 months before the relevant date;
(ii) as ascertained by referring to one or more audited financial statements, each being the most recent audited financial statement, prepared-
(A) in respect of the trust or any of the trust; and
(B) within 16 months before the relevant date; or
(iii) as ascertained by referring to one or more custodian (see below) statements issued to the trust corporation-
(A) in respect of the trust or any of the trusts; and
(B) within 12 months before the relevant date;
(l) any individual, either alone or with any of his associates (the spouse or any child) on a joint account, having a portfolio (see below) of not less than HK$8 million or its equivalent in any foreign currency at the relevant date or-
(i) as stated in a certificate issued by an auditor or a certified public accountant of the individual within 12 months before the relevant date; or
(ii) as ascertained by referring to one or more custodian statements issued to the individual (either alone or with the associate) within 12 months before the relevant date;
(m) any corporation or partnership having-
(i) a portfolio of not less than HK$8 million or its equivalent in any foreign currency; or
(ii) total assets of not less than HK$40 million or its equivalent in any foreign currency, at the relevant date, or as ascertained by referring to-
(iii) the most recent audited financial statement prepared-
(A) in respect of the corporation or partnership (as the case may be); and
(B) within 16 months before the relevant date; or
(iv) one or more custodian statements issued to the corporation or partnership (as the case may be) within 12 months before the relevant date; and
(n) any corporation the sole business of which is to hold investments and which at the relevant date is wholly owned by any one or more of the following persons-
(i) a trust corporation that falls within the description in paragraph (k);
(ii) an individual who, either alone or with any of his or her associates on a joint account, falls within the description in paragraph (k);
(iii) a corporation that falls within the description in paragraph (m);
(iv) a partnership that falls within the description in paragraph (m).
For the purposes of paragraphs (k) to (n) above:
An institutional investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(a) the Singapore Government;
(b) a statutory board as may be prescribed by regulations made under section 341 of the SFA, as prescribed in the Second Schedule of the Securities and Futures (Classes of Investors) Regulations 2018;
(c) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is —
(i) to manage its own funds;
(ii) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or
(iii) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;
(d) any entity —
(i) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and
(ii) whose funds are managed by an entity mentioned in sub‑paragraph (c);
(e) a bank that is licensed under the Banking Act 1970;
(f) a merchant bank that is licensed under the Banking Act 1970;
(g) a finance company that is licensed under the Finance Companies Act 1967;
(h) a company or co‑operative society that is licensed under the Insurance Act 1966 to carry on insurance business in Singapore;
(i) a company licensed under the Trust Companies Act 2005;
(j) a holder of a capital markets services licence;
(k) an approved exchange;
(l) a recognised market operator;
(m) an approved clearing house;
(n) a recognised clearing house;
(o) a licensed trade repository;
(p) a licensed foreign trade repository;
(q) an approved holding company;
(r) a Depository as defined in section 81SF of the SFA;
(s) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere;
(t) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors;
(u) a designated market‑maker as defined in paragraph 1 of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations;
(v) a headquarters company or Finance and Treasury Centre which carries on a class of business involving fund management, where such business has been approved as a qualifying service in relation to that headquarters company or Finance and Treasury Centre under section 43D(2)(a) or 43E(2)(a) of the Income Tax Act 1947;
(w) a person who undertakes fund management activity (whether in Singapore or elsewhere) on behalf of not more than 30 qualified investors;
(x) a Service Company (as defined in regulation 2 of the Insurance (Lloyd’s Asia Scheme) Regulations) which carries on business as an agent of a member of Lloyd’s;
(y) a corporation the entire share capital of which is owned by an institutional investor or by persons all of whom are institutional investors;
(z) a partnership (other than a limited liability partnership within the meaning of the Limited Liability Partnerships Act 2005) in which each partner is an institutional investor.
An accredited investor as defined in Section 4A of the SFA and Securities and Futures (Classes of Investors) Regulations 2018 is:
(i) an individual —
(A) whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(B) whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount, where “financial asset” means —
(BA) a deposit as defined in section 4B of the Banking Act 1970;
(BB) an investment product as defined in section 2(1) of the Financial Advisers Act 2001; or
(BC) any other asset as may be prescribed by regulations made under section 341; or
(C) whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe in place of the first amount;
(ii) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the Authority may prescribe, in place of the first amount, as determined by —
(A) the most recent audited balance sheet of the corporation; or
(B) where the corporation is not required to prepare audited accounts regularly, a balance sheet of the corporation certified by the corporation as giving a true and fair view of the state of affairs of the corporation as of the date of the balance sheet, which date must be within the preceding 12 months;
(iii) A trustee of a trust which all the beneficiaries are accredited investors; or
(iv) A trustee of a trust which the subject matter exceeds S$10 million; or
(v) An entity (other than a corporation) with net assets exceeding S$10 million (or its equivalent in a foreign currency) in value. “Entity” includes an unincorporated association, a partnership and the government of any state, but does not include a trust; or
(vi) A partnership (other than a limited liability partnership) in which every partner is an accredited investor; or
(vii) A corporation which the entire share capital is owned by one or more persons, all of whom are accredited investors.
Continuation solutions encompass a host of transaction types in which a GP secures interim liquidity and/or additional primary capital for their LPs in a strongly performing asset, or set of assets, that the GP will continue to own and control. Specifically, they include continuation funds, new funds created by GPs for the purpose of acquiring the asset(s) that continue to be managed by the same GP and capitalized by one or several secondary buyers, or equity recapitalizations involving a direct equity or structured equity investment into a portfolio company. These transactions can also include a parallel investment from the GP’s latest fund into that same pool of assets (a “cross-fund trade”).
