In 2023, several US regulatory agencies have introduced new rules to enhance transparency in the investment process, particularly impacting how sovereign wealth funds (SWFs) structure their investments in the climate tech sector. Key changes include amendments to the Investment Advisers Act of 1940 by the SEC, new beneficial owner requirements under the Corporate Transparency Act, and sweeping HSR rules by the FTC. Notably, the SEC’s changes to preferential treatment rules for private fund investors could significantly affect side letter and “most favored nations” practices, which SWFs have been closely monitoring due to their potential impact on private equity deals. Despite legal challenges by private equity and hedge fund trade groups, these rules aim to promote fairness and protect investors’ interests.
Furthermore, the Corporate Transparency Act, set to be enforced from January 1, 2024, introduces beneficial ownership reporting requirements, potentially increasing disclosure requirements for SWFs conducting business in the US through affiliated entities. SWFs and similar non-US governmental institutions should assess the rule’s applicability, explore available exemptions, and consider operational restructuring to navigate its implications.
Additionally, proposed changes to the Hart-Scott-Rodino premerger notification form by the FTC may lead to longer and more cumbersome merger reviews, potentially impacting funds, including SWFs, by requiring the disclosure of fund investor information in specific circumstances. Lastly, IRS proposed regulations under Sections 892 and 897 offer potential benefits to SWFs by easing restrictions on US real estate investments, particularly in private funds focused on real estate or infrastructure.
These changes aim to reduce administrative burdens and provide flexibility for certain foreign government investors.
Overall, these regulatory shifts in the US underscore the evolving landscape for SWFs and investors in climate tech and environmental solutions, requiring careful consideration and potential adjustments to investment strategies and structures.