• A new executive order may allow 401(k) plans to invest in private equity, hedge funds, and other alternatives typically reserved for institutions.

• Plan sponsors must weigh higher returns against risks like illiquidity, valuation challenges, and increased fiduciary oversight responsibilities.

• Legal and regulatory frameworks are evolving fast, requiring plan providers to strengthen transparency, fee structures, and participant education.

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On August 7, 2025, President Trump signed an executive order directing the Department of Labor (DOL) and Securities and Exchange Commission (SEC) to expand access to alternative assets — including private equity, real estate, and digital assets — for 401(k) plans. The goal: open the door to private equity, hedge funds, real estate, and even crypto in retirement plan menus. As both 401(k) auditors and trusted advisors, MGO is helping plan sponsors understand what this expanded access to private equity means for governance and compliance.

Why This Matters Now

With fewer public companies and growing demand for diversified retirement options, private equity firms and plan administrators have been advocating for broader access to private markets. Major players like Blackstone, KKR, and Apollo are pushing to offer these strategies to everyday savers through target date funds and pooled investment options.

Regulators are responding, Trump’s executive order is expected to accelerate this trend by instructing the DOL and SEC to build a framework for oversight and access. This move is positioned as a retirement security initiative to democratize access to high-quality investment options, aiming to empower over 90 million Americans currently excluded from alternative asset opportunities.

Potential Benefits

• Higher return potential: Private equity has historically delivered strong long-term performance, with average annual returns nearing 14% compared to ~8% for public equities.

• Diversification: Adding private market exposure can reduce correlation to public stocks and may help smooth volatility over time.

• Tax deferral: Returns on alternative investments in 401(k)s keep the same tax advantages as traditional plan assets.

• Expanded access: Ordinary investors gain exposure to asset classes previously reserved for accredited or institutional investors, democratizing retirement portfolio options.

Risks and Concerns

• Liquidity and transparency: Private investments are harder to value, less liquid, and more complex to manage than traditional funds.

• Fee structures: Management and performance fees are significantly higher than index funds, which can erode participant returns.

• Fiduciary exposure: Plan sponsors carry legal responsibilities under the Employee Retirement Income Security Act (ERISA). If alternatives are misused or misunderstood, liability risk increases.

• Focused investment risk: Private equity funds may concentrate on specific sectors or strategies, which can increase exposure to market shifts or operational volatility.

• Potential for loss: Like all investments, private equity carries risk — including the possibility of capital loss — despite the perception of higher returns.

Regulatory Momentum

The Trump administration’s order builds on a 2020 DOL information letter that cautiously allowed private equity in defined contribution plans — but few sponsors acted. The new order goes further by directing agencies to build consistent frameworks for oversight, pricing, and participant protections.

The order also instructs the SEC to revise applicable regulations to support the inclusion of alternative assets in participant-directed defined contribution plans. The SEC has indicated it may issue new valuation and fee disclosure rules to support this shift.

What Plan Sponsors Should Do

How MGO Can Help

As plan sponsors consider adding private equity or other alternatives to 401(k) lineups, fiduciary responsibilities and audit requirements become more complex. MGO offers guidance to help organizations evaluate these changes, manage risk, and stay compliant with ERISA and DOL expectations.

Our employee benefit plan (EBP) audit team conducts hundreds of 401(k) plan audits annually. We understand the documentation, disclosures, and governance needed to support evolving investment strategies. Whether you’re navigating new guidance, restructuring plan offerings, or preparing for audit readiness, we bring the insight and experience to support your goals. Contact us today to learn how we can help you.

The post Private Equity Access in 401(k) Plans Gains Steam appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The new law preserves SALT workarounds and Section 199A, but limits itemized deductions and expands QSB stock eligibility. 

• Asset managers must reassess their investment structures, energy projects, and carried interest planning. 

• Portfolio companies gain bonus depreciation and interest deduction flexibility but face new limits in 2026. 

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The enactment of the One Big Beautiful Bill Act (OBBB) on July 4 will have a significant impact on tax planning for the investment and asset management industry. 

The act has mostly favorable provisions for asset management, with varying implications for asset managers, portfolio company investments, and investors. With the legislation now final, investors and funds should focus on assessing its impact and identifying planning opportunities and challenges. 

Several key provisions offer different options for implementation. The effective dates will be important, and there may be time-sensitive planning considerations. The act could immediately affect decisions on how to structure new investments in tax efficient ways. 

This Alert highlights key provisions of the OBBB affecting the asset management industry. For a broader discussion of the act, see BDO’s Tax Alert: “Republicans Complete Sweeping Reconciliation Bill.” Also available are a table of major provisions, a recording of a July 10 webcast on the act, and discussions of the financial accounting implications, international tax provisions, and real estate implications.  

Key Implications for Asset Managers 

Preservation of SALT Cap Workarounds and Section 199A 

The act makes permanent the Section 199A deduction for pass-through business income. The deduction will still generally not be available for financial services, brokerage services, investing or investment management, trading, or dealing in securities. It will remain available for real estate investment trusts (REITs), banking, and some portfolio company operating businesses structured as pass-throughs. 

The OBBB makes the state and local tax (SALT) cap permanent while raising the threshold for five years and then reverting it to $10,000 in 2030. The cap is set at $40,000 for 2025 but phases down to $10,000 once income exceeds $500,000. Both thresholds will increase by 1% for each year through 2029. More importantly, lawmakers struck a provision that would have shut down SALT cap workarounds offered by states with pass-through entity tax (PTET) regimes.  

Takeaway 

Most states have now enacted PTET regimes that allow pass-through businesses to elect to be taxed at the entity level, where a deduction is allowed without regard to the individual SALT cap. The regimes can offer a valuable benefit to both managers and investors, particularly in years when a transaction will create significant state taxes. The elections can also have complex ramifications and should be modeled first.  

IRA Energy Credits Phaseout and Repeal 

The OBBB raises approximately $500 billion by repealing, restricting, and phasing out many of the energy credits enacted under the Biden administration as part of the Inflation Reduction Act (IRA). The effective dates for the phaseouts and new restrictions are staggered depending on the specific credit. The act does not affect the transferability or refundability of the credits. 

Takeaway 

Funds involved in energy investments or projects should carefully assess the impact of the rules. It may be prudent to accelerate some near-term projects while reassessing the economic viability of projects that are less shovel ready. The credit transfer market and tax equity financing market should remain robust for the next several years.   

Changing the Regulatory Mandate for Disguised Sales or Payments for Services 

The act changes a reference to regulations under Section 707(a)(2) that could affect fund managers. It essentially clarifies that the rules are effective even in the absence of regulations. 

Section 707(a)(2) allows the IRS to recharacterize certain transactions involving partners and partnerships. For example, Section 707(a)(2) can be used to treat the exchange of partnership interests for waived management fees or carried interests as a disguised payment for services. If applicable, this can result in fund managers or carry partners recognizing ordinary income rather than capital gains. Additionally, certain contributions of cash to a partnership followed by a distribution to the partners may be recharacterized as a purchase of partnership interests from the selling partners. This recharacterization could result in the recognition of additional taxable gain by the “selling” partner.  

The statute was previously drafted to provide that Section 707(a)(2) operates “under regulations prescribed by the Secretary.” To date, no regulations have been finalized addressing disguised sales of partnership interests. Further, only proposed regulations have been issued addressing disguised payment for services. The act modifies the statute to provide that Section 707(a)(2) operates “except as provided by the Secretary.” This appears to clarify that the statute operates even in the absence of regulations. Further, the amendment delegates significant authority to the IRS to provide operational rules. 

Takeaway 

The IRS has long argued that the prior statute is still operative even in the absence of regulations, and the legislation provides that it should not be “construed to create any inference with respect to the proper treatment under Section 707(a)” before the date of enactment. But there may be some question as to whether taxpayers can argue that the rules do not apply to prior transactions because of the lack of regulations. The provision is effective for services performed and property transferred after July 4, 2025. 

Pro-Rata Rules Under GILTI and Subpart F  

The act changes the pro-rata share rules to require a U.S. shareholder of a controlled foreign corporation (CFC) to include its pro-rata share of Subpart F or Net CFC Tested Income (formerly GILTI) if it owned stock in the CFC at any time during the foreign corporation’s tax year in which it was a CFC. It removes the requirement that the U.S. shareholder own the CFC’s stock on the last day the foreign corporation was a CFC. Treasury is given the authority to issue regulations allowing taxpayers to make a closing of the tax year election if there is a disposition of a CFC. 

Takeaway 

Managers will need to analyze current investments to understand the impact of this change. Managers will need to closely monitor the investor makeup of offshore funds, especially in the initial launch/fundraising phase. 

Active Business Losses Under Section 461(l) 

The OBBB makes the active loss limit under Section 461(l) permanent, while reducing the threshold at which it applies beginning in 2026. Lawmakers struck from the act a provision that would have changed how disallowed losses under Section 461(l) are treated. 

Takeaway 

A disallowed loss under Section 461(l) will still be converted to a net operating loss (NOL) in subsequent years. This allows investors to use an NOL created by Section 461(l) against other sources of income in future years. 

Repeal of Itemized Deductions 

The act makes permanent the repeal of most itemized deductions, including those for investment expenses (apart from investment interest) incurred for the production of income under Section 212. 

Takeaway 

Consistent with the treatment since 2018 under the Tax Cuts and Jobs Act, investment expenses will generally only be deductible to the extent they are considered ordinary and necessary expenses of an activity that rises to the level of a trade or business under Section 162. This will continue to impact investors in private equity, venture capital, and other investment funds where items such as management fees generally are not deductible at the individual level. 

Limit on Value of Itemized Deductions 

The OBBB creates a new limit on itemized deductions, including investment interest. The provision would essentially cap the value of itemized deductions so that the maximum benefit achievable is equivalent to offsetting income taxed at a top rate of 35% rather than offsetting income taxed at the higher individual marginal rate of 37%. 

Takeaway 

This limit applies after the deduction is capped based on the amount of net investment income. For individuals taxed at the 37% rate, this is essentially equivalent to imposing a 2% tax on the total amount of otherwise deductible investment interest (and any other itemized deductions).    

Creation of Trump Accounts 

The OBBB establishes new tax-preferred investment accounts for individuals under the age of 18. Contributions are set to begin one year after enactment and are allowable up to $5,000 per year until the calendar year before an individual turns 18. A pilot program will provide a $1,000 tax credit for contributing to an account for every child born from 2025 through 2028. Eligible investments are limited to mutual funds or exchange traded funds that track a qualified index, do not use leverage, and have expenses of less than 0.1%. Qualified indexes include the S&P 500 and other indexes for equity investments primarily in U.S. companies. Industry-specific indexes are prohibited but indexes based on market capitalization are allowed.  

Takeaway 

The automatic $1,000 contribution for children born from 2025-2028 will create millions of potential accounts for the asset management industry to administer.  

Key Implications for Portfolio Company Investments 

Expansion of Qualified Small Business Stock Eligibility 

The act enhances the exclusion of gain for qualified small business (QSB) stock under Section 1202 issued after July 4, 2025: 

• In addition to the existing 100% exclusion for qualified stock held for five years, taxpayers can qualify for a 50% exclusion after three years and a 75% exclusion after four years. 

• The current limit on the exclusion (the greater of $10 million or 10 times basis) is increased to the greater of $15 million or 10 times basis, indexed to inflation beginning in 2027.  

• The limit on gross assets at the time stock is issued is increased from $50 million to $75 million, indexed to inflation beginning in 2027. 

Takeaway 

QSB stock is a powerful tax planning structure that has become increasingly popular with private equity in recent years. The changes make the structure more accessible and increase the size of potential investments. State conformity to both the existing rules and new changes will be important for determining whether the structure is appropriate. Key states such as California do not conform to the federal QSB stock exclusion.  

Section 163(j) Limit on the Interest Deduction 

The OBBB permanently restores the exclusion of amortization, depreciation, and depletion from the calculation of adjusted taxable income (ATI) for purposes of Section 163(j), which generally limits interest deductions to 30% of ATI. The change is effective for tax years beginning after 2024. 

The act makes two unfavorable changes for tax years beginning after 2025. Income from Subpart F and Net CFC Tested Income (formerly GILTI) will be excluded from ATI along with Section 78 gross-up amounts for indirect foreign tax credits. More importantly, the limit will apply to any interest capitalized to other assets, except interest capitalized to straddles under Section 263(g) or to specified production property under Section 263A(f). 

Takeaway 

The changes may allow highly leveraged portfolio companies to deduct suspended interest carryforwards beginning in 2025. Although the act essentially shuts down interest capitalization planning for years beginning in 2026 or later, those strategies remain viable for the 2024 and 2025 tax years. The legislation will not claw back any interest capitalized to other assets in tax years beginning before 2026, even if the capitalized interest has not been fully recovered with the asset. Interest capitalization planning in 2024 and 2025 could help some portfolio companies deduct additional interest more quickly and could be particularly beneficial for companies that may still face the limit even after the favorable change to ATI.  

Bonus Depreciation and Small Business Expensing 

The act permanently restores 100% bonus depreciation for property placed in service after January 19, 2025. The change could affect the Section 743(b) basis adjustment for funds purchasing interests in a partnership. The act also increases the Section 179 deduction to $2.5 million with a phaseout threshold of $4 million for property placed in service after 2024, with both thresholds indexed to inflation in future years. 

Restoration of Limitation on Downward Attribution of Stock Ownership  

The act reinstates Section 958(b)(4), which, prior to the Tax Cuts and Jobs Act (TCJA), prohibited the downward attribution of stock ownership from a foreign person to a U.S. person for purposes of determining CFC and U.S. shareholder status. The repeal of Section 958(b)(4) under the TCJA resulted in many foreign corporations becoming CFCs and created filing obligations for constructive U.S. shareholders. These rules are effective for tax years beginning after December 31, 2025. 

Takeaway 

The restoration of Section 958(b)(4) could simplify reporting obligations for certain taxpayers. Taxpayers that were affected by the repeal of Section 958(b)(4) in the past should carefully review these rules to see if they are impacted by the reinstatement of the section. 

Section 174A Research Expensing 

The act permanently restores the expensing of domestic research costs for tax years beginning after December 31, 2024. The permanent expensing rules are created under new Section 174A, while Section 174 is retained and amended to provide for the continued 15-year amortization of foreign research costs. Taxpayers retain the option of electing to capitalize domestic Section 174A costs and amortize such amounts over 10 years or the useful life of the research (with a 60-month minimum).  

The act will generally require taxpayers to implement the new treatment with an automatic accounting method change on a cut-off basis, but it offers two alternative transition rules. Taxpayers can elect to claim any unamortized amounts incurred in calendar years 2022, 2023, and 2024 in either the first tax year beginning after 2024 or ratably over the first two tax years beginning after 2024. Separate transition rules are available for eligible small business taxpayers meeting the gross receipts test under Section 448 ($31 million in 2025) for the first tax year beginning after 2024, allowing those taxpayers to file amended returns to claim expensing for tax years before 2025. 

Takeaway 

There are important interactions between Section 174 and other tax attributes, especially for portfolio companies that will continue to face a limit on interest deductions even after the OBBB change. Companies should consider modeling out the implementation options and capitalization elections to determine the most favorable treatment. 

Real Estate Investment Trusts   

The OBBB raises the percentage of allowable assets a REIT may have in a taxable REIT subsidiary from 20% to 25% effective for tax years beginning after 2025. The change provides additional structuring flexibility for managers with REITs in their structure.  

Deductions for Overtime Pay and Tip Income 

The act creates a deduction of up to $12,500 (single) and $25,000 (joint) on qualified overtime compensation, as well as a deduction of up to $25,000 on qualified tips reported on Forms W-2, 1099-K, 1099-NEC, or 4317. These deductions are allowed from 2025 through 2028 without regard to whether a taxpayer itemizes deductions.  

Takeaway 

These new deductions will carry certain reporting requirements and compliance complexities, impacting portfolio companies with eligible employees. Hospitality companies, in particular, will need to make several determinations at the entity level that could affect whether employees qualify. All companies should consider communicating with employees that receive tips or overtime wages on the withholding considerations.    

Key Implications for Investors 

Endowment Tax Increase  

The OBBB will increase the 1.4% tax on net investment income of private colleges and universities, but it will limit the application of the tax to universities with at least 3,000 tuition-paying students (up from 500). The OBBB imposes a new rate structure with excise taxes up to 8%.  For institutions with a student adjusted endowment over $500,000 and not exceeding $750,000, the rate remains 1.4%.  For institutions with a student adjusted endowment over $750,000 and not exceeding $ 2 million, the rate is 4%. For institutions with a student adjusted endowment over $2 million, the top rate is 8%. The changes are effective for tax years beginning after 2025. 

Takeaway 

Affected universities have some runway before the change takes effect, particularly those with fiscal years ending on June 30. There may be planning opportunities to accelerate income or trigger gains at lower rates.  

Written by Shawn McKenna, Joe Pacello and Dustin Stamper. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

How MGO Can Provide Strategic Tax Guidance for Asset Managers Facing OBBB Changes 

MGO works with asset managers, private equity funds, and investors to turn policy shifts into opportunity. The OBBB introduces a wide array of changes, from enhanced QSB stock benefits and bonus depreciation to stricter rules around disguised sales and interest deductibility. Our tax team help you model scenarios, optimize fund structures, and align tax strategies with evolving rules. Whether you’re rethinking offshore structures, planning around energy credit phaseouts, or managing carried interest treatment, we provide you with the insight and execution you need to keep your investments tax efficient and future ready. Contact us to learn more.  

The post OBBB Is Final: What’s Next for Asset Managers?  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• IRS Form 7217 introduces new tax reporting requirements for investors in private equity, hedge funds, investment partnerships, or any other partnership.  

• Partners receiving in-kind distributions must file Form7217 for each distribution and report basis of the distributed property, including any basis adjustments to such property.  

• Fund managers should prepare for investor questions and compliance impacts as the IRS increases scrutiny of partnership transactions and basis shifting.  

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New Filing Obligations for In-Kind Distributions 

Beginning with tax years starting in 2024, the IRS now requires partners in partnerships to report in-kind distributions of property using a newly released form — Form 7217: Partner’s Report of Property Distributed by a Partnership. This rule applies broadly across the investment fund landscape, including private equity, venture capital, hedge funds, and fund-of-funds that receive securities or other property distributions not classified as cash. 

If your fund structure allows for non-cash distributions — especially in restructuring scenarios or when forming continuation funds — your investors may now be required to attach Form 7217 to their tax returns for each distribution event. Making sure you’re compliant and clearly communicative with your investors will be critical.  

When Does Form 7217 Apply? 

Form 7217 applies when a partner receives a distribution of property other than cash or marketable securities treated as cash. Investment partnerships meeting certain criteria can distribute marketable securities tax-free, allowing partners to defer income recognition until those securities are sold. But this deferral still comes with added compliance: every qualifying distribution event now requires its own Form 7217. 

Reporting includes: 

• Date of each distribution 

• Basis of distributed property 

• Any basis adjustments related to the transaction 

Importantly, a separate form is required for each distribution date. That means multiple distributions throughout the year will result in multiple Form 7217 attachments— raising complexity and potential audit exposure for recipients. 

Why This Matters: IRS Focus on Partnership Scrutiny 

This change is part of a larger trend: increased IRS scrutiny of basis-shifting and partnership transactions. Form 7217 represents another step in the agency’s efforts to monitor and track partnership activity more closely, especially in areas involving deferred tax treatment and in-kind distributions. 

Fund managers should anticipate an uptick in questions and document requests from LPs and investor tax advisors as we quickly approach the 2024 tax season extended deadline. Being proactive now can reduce filing risk and streamline communication. 

How Fund Managers Can Prepare 

To help investors meet their compliance obligations and avoid downstream tax issues, your firm should consider the following steps: 

1. Update Tax Reporting Workflows 

Integrate Form 7217 requirements into your fund’s year-end tax packages and document handoffs. 

2. Communicate Early with Investors 

Inform LPs of their obligations under the new rules, especially if your fund strategy involves in-kind distributions. 

3. Consult with Tax Advisors 

Work with partnership tax professionals to ensure accurate tracking and address any gray areas involving property classification. 

The post What Fund Managers Need to Know About New IRS Reporting Rules  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Sell-side due diligence helps maximize portfolio company value and reduce transaction risks. 

• Strategic planning and early issue resolution streamline M&A processes. 

• Tax, quality of earnings, and balance sheet reviews are crucial for successful exits. 

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You may have noticed that after a period of slower deal activity, middle market mergers and acquisitions (M&A) have ramped up and are showing signs of resurgence. Data from PitchBook’s Q2 US PE Middle Market Report indicating a 12% increase in the first half of 2024 compared to the same period in 2023. 

And following a change in administration after the recent U.S. presidential election and the Federal Reserve’s November decision to lower the benchmark federal funds rate another quarter point to a range of 4.50 – 4.75%, we expect this momentum to continue.  

We’ve already seen lower interest rates impacting the broader market. In its Q3 US PE Breakdown, which covers all US PE deal activity, PitchBook reported its highest level of estimated exits (394) since Q1 2022. The Russell 2000 Index — often viewed as a bellwether for private company valuations — rose 1.8% immediately following the rate cut and is up nearly 9% year-to-date. 

It’s expected that these tailwinds should ripple into the portfolio companies of private equity (PE) firms, as these funds look to increase exit activity, which has remained flat year-over-year. 

What You Should Expect for Middle Market Dealmaking 

Although deal activity is expected to increase, PE exits in the middle-market have stabilized as noted below but not meaningfully improved. 

Exit Backlog Should Inspire More M&A

Due to the exit backlog, many PE funds are facing increasing pressure to sell portfolio companies, or portcos, after historically long holding periods. U.S. general partners (GPs) have been waiting for more favorable exit market conditions, extending the median holding period for middle-market PE investments to a record 6.4 years in 2023, according to PitchBook. 

The exit market conditions have become more favorable, given the recent increase in the Russell 2000 Index noted previously, as well as the rise in middle-market deal multiples, which have recovered to 12.9x EV/ EBITDA from a bottom of 11.0x in 2023. Plus, the earnings of private companies have steadily improved, which should also help bolster their valuations. 

These two factors should set the stage for renewed deal activity. One could predict that a rebound in exits will power PE M&A activity in the middle market, as more funds kick off sales processes for the portcos they have been holding onto for an extended period. 

Strategics Play Important Role in Middle Market Exit Activity 

As they kick off their expected sales processes, PE funds operating in the middle market are likely to look to other sponsors and strategic buyers. 

Since Q1 2023, sponsor-to-sponsor exits have consistently outpaced exits to corporate strategics, making up over 55% of exit activity in Q1 and Q2 of 2024, excluding public listings according to PitchBook. 

But strategic buyers remain highly competitive in the middle market. In fact, 69% of fund managers and operating partners in BDO’s 2024 Private Equity Survey reported strategic investors as their top competition for deals, indicating that strategics are still highly engaged and poised to capitalize on opportunities. Moreover, 57% of respondents said they will pursue a sale to a strategic for their exits compared with 37% who cited a sale to a financial sponsor. 

Driven by the substantial dry powder accumulated over recent years ($499.4 billion for US middle market funds according to the American Investment Council and PitchBook ) PE firms are moving more quickly on deals. 

How You Can Prepare for an Exit with Sell-Side Due Diligence 

There are several things that can derail your M&A transactions—poor strategic planning, non-disclosure of material changes or events, inconsistent internal controls, and cultural disparities between the buyer and the target—to name a few. With sell-side due diligence, PE firms can address these issues before the sale process begins. Of course, deals can always fall apart due to factors outside of the sellers’ control (e.g., political changes or economic turbulence), but you should prepare your portfolio companies for exit by managing what you can control with a sell-side due diligence process. 

Sell-side due diligence helps GPs maximize the value of portfolio companies and minimize transaction risk during the deal evaluation, negotiation, and closing processes. 

When executed effectively, sell-side due diligence offers three key benefits for sellers: 

MGO’s Take: How We Think About Sell-Side Due Diligence 

Our core sell-side due diligence offering achieves two primary objectives: 

• Identifying and capitalizing on opportunities 

• Identifying and mitigating transaction risks 

We apply this approach uniformly across the seller’s financial and tax positions in relation to a potential transaction. 

1. Quality of Earnings 

Quality of earnings analysis is essential for understanding the sustainability and reliability of a portco’s earnings. 

• Identify and Capitalize on Opportunities: Analyze operating trends by business unit, product line, and customer, and bridge these results to projections. Our analysis can often identify one-time costs or possible pro forma adjustments that can increase the seller’s adjusted EBITDA. 

• Identify and Mitigate Transaction Risks: Assess the quality of earnings and identify any revenue recognition issues, cost capitalization concerns, non-recurring charges or credits, and changes in estimates or reserves that may impact the quality of reported earnings and cash flows. Evaluate all proposed earnings before interest, tax, depreciation, and amortization (EBITDA) adjustments and supporting analysis. 

2. Tax Due Diligence

Establish the portco’s tax position and address compliance with various tax obligations. 

• Identify and Capitalize on Opportunities: Determine the appropriate transaction structure for the seller and assess its impact on potential buyers. 

• Identify and Mitigate Transaction Risks: Identify tax-related risks, including federal, state, and sales tax obligations. Quantify and address potential tax exposures to avoid future liabilities. 

3. Balance Sheet Due Diligence

Evaluate the financial health of the portco to identify opportunities and risks that may affect the transaction. 

• Identify and Capitalize on Opportunities: Evaluate monthly working capital trends, focusing on balances and turnover statistics directly attributable to operations. Identify the most favorable working capital target possible for the seller. 

• Identify and Mitigate Transaction Risks: Analyze the quality of assets, the completeness of liabilities, debt-like items, and any contingent obligations. Review capital expenditure requirements and assess the sufficiency of the assets to deliver projected results.

Additional Due Diligence 

Larger deals may require additional due diligence to cover more complex transactions. In these cases, sellers may explore: 

• Workforce Due Diligence 

• Commercial Due Diligence 

• Operational Due Diligence 

• Cyber/IT Due Diligence 

• Investigative Due Diligence 

• Insurance & Risk Due Diligence 

• ESG Due Diligence

Why MGO for Private Equity Advisory 

MGO equips private equity firms with the tools to achieve successful exits. Our sell-side due diligence services focus on uncovering value, addressing risks, and preparing portfolio companies for seamless transactions. From quality of earnings analysis to tax positioning and balance sheet reviews, we guide firms through every stage of the exit process. MGO ensures compliance, minimizes deal risks, and enhances valuations, helping private equity firms maximize returns and secure favorable outcomes in competitive markets. Contact us to learn more.

The post Planning for a Successful Private Equity Exit  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Deal activity to rise in 2025 as valuation gaps narrow, driven by interest rate cuts and GDP growth.

• Add-on deals will boost portfolio valuations, making up a sizable part of PE activity.

• International markets offer new opportunities for North American PE firms amid domestic uncertainties.

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As private equity (PE) enters 2025, overall, the industry feels optimistic about the changing macroeconomic conditions and the impact they’ll have on M&A. With interest rate cuts, projected GDP growth, and potential regulatory changes, such as softened FTC regulations and lower capital gains tax rates, the stage has been set for increased deal activity and fundraising. 

However, challenges remain, with things like higher capital costs and lingering valuation gaps creating potential issues. Proposed tariffs may lead fund managers to focus on marketing portfolio companies that rely on domestic suppliers, given the uncertainties in supply chain dynamics with foreign suppliers. To stay competitive, PE firms are adopting creative approaches to deals and value creation, seeking new ways to generate returns in market that will continuously grow in complexity.  

1. Deal Activity Will Continue to Accelerate 

There is cautious optimism that the gap between buyer and seller expectations will narrow, driving more deals to reach the finish line in 2025. Several macroeconomic factors are driving valuations to increase, including declining interest rates and a 2025 GDP growth forecast as high as 2.5%. A change in administration could also create more fluidity in the exit markets as fund managers look to exit investments after extended holding periods. Upbeat earnings calls and rising stock prices for private equity and investment banks signal expectations for increasing IPOs and M&A activity. Reduced regulatory oversight and potential capital gains tax cuts could motivate owners to sell businesses after elevated inflation and increased borrowing costs. 

2. Funds Will Bolster Portco Valuations with Add-on Deals 

While private equity is optimistic about 2025 macroeconomics, you won’t see the shifting dynamics reflected in portco valuations just yet. Funds are prioritizing the sale of assets with the strongest potential for return on investment and holding onto assets with lingering valuation issues, aiming to grow portcos before moving to sell. This dynamic is delaying broader recovery in exit strategies but should begin to soften throughout 2025. You can expect add-on transactions, which currently account for three in four buyouts in the U.S. private equity deal market, to continue to make up a massive part of PE deal activity in the next year. 

3. Corporations Will Continue to Actively Buy Assets From – and sell to – PE Firms 

Excluding public listings, exits to corporates make up 43.9% of YTD middle market exit value, as of the end of Q3, and we expect they will remain competitive in 2025. While interest rate cuts will be a tailwind for the whole market, a continued high-interest rate environment will be more challenging for PE sponsors. A higher cost of capital slows funds looking to finance deals and pursuing investment opportunities that would have relied more on multiple expansions to drive returns. Corporate acquirers will keep greater buyer strength during the upcoming M&A recovery, presenting opportunities for PE in 2025. 

4. Creativity — in Deals, Distributions and Value Creation — as a Competitive Edge 

While the cost of capital stays elevated, PE funds are seeking a walk on the creative side — with their strategies, that is — to drive portfolio company valuations. Simpler buyouts stay challenging in the current environment, but larger firms capable of handling intricate deals — such as carve-outs, take-privates, and international transactions — are finding value in these transactions. In 2025, firms will continue to explore refinancing options to enhance portfolio value alongside further rate cuts. PE firms will work to increase EBITDA through operational improvements and emerging technologies, such as AI. Additionally, secondary transactions like continuation funds, NAV loans, and dividend recapitalization deals will be used to return capital to investors. 

5. North American Firms Will Seek Returns Abroad Amid Continued Uncertainty 

International deal activity is increasingly tracking with pre-pandemic levels, and global M&A activity grew significantly in 2024. This trend is expected to continue into 2025, driven by improvements in debt markets and associated pricing. North American PE firms are finding success in international markets, particularly in emerging tech centers outside the U.S. If the U.S. dollar continues to strengthen, PE investors will likely seek investments abroad in markets like Europe. 

What Comes Next? 

2025 brings both challenges and opportunities for PE. As the cost of capital is still elevated and geopolitical shifts impact markets, staying ahead will require agility, innovation, and a keen eye for emerging trends. 

How MGO Can Help 

At MGO, we understand the complexities and opportunities that 2025 brings for private equity. Our team provides strategic insights and innovative solutions to help you navigate the evolving market landscape. Whether it’s optimizing deal structures, enhancing portfolio valuations, or exploring international opportunities, we are here to support your goals with tailored, data-driven approaches. Let us help you to achieve sustainable growth and success in the year ahead. For more information, visit our Financial Services page. 

The post Your Guide to Private Equity in 2025: What to Expect and How to Stay Ahead appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Comprehensive fund administration services can support investment funds and auxiliary entities like management companies and general partners.
• Combining advanced technology with personalized human oversight helps provide accurate financial reporting and compliance.
• The right partner offers services beyond fund administration — including tax compliance, audit support, and operational assistance — all under one roof.

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Navigating the world of fund administration today can be complex. You need a sophisticated and reliable support system — especially with the rigorous regulatory requirements investment funds face. Fortunately, by partnering with the right provider, you can access comprehensive fund administration services tailored to meet the needs of investment managers, private equity firms, family offices handling venture capital funds, and those managing special purpose vehicles (SPVs).

Here is a look at the benefits of combining fund administration with integrated tax compliance and audit support services so you can focus on growing your investment fund with confidence.

How a Full-Service Approach to Fund Administration Benefits You

A modern approach to fund administration goes beyond traditional, standalone services. A comprehensive approach supports the core fund as well as management companies and general partner entities — areas where conventional fund administrators often fall short.

Whether you need assistance with cash management, payroll, or other operational tasks, the right service provider can offer a full range of services under one roof. This integration streamlines operations, eliminates the need for multiple vendors, and facilitates a consistent, high-quality service experience.

Merging Technology with Human Insight

Fund administration is more than having software for net asset value (NAV) calculations. Many large firm administrators rely heavily on technology and artificial intelligence to handle these tasks. While this tech-first approach can offer efficiency, it often results in a disconnect between the financial reports generated by software and the actual economic realities of the fund.

Incorrect data (such as unexplained accruals or NAV calculations that do not reflect actual financial activity) reverberates down the line, leading to inefficiencies and unnecessary rework during the audit process. The right fund administration service provider brings a human touch to the process by reviewing financials before they reach you and your investors, catching discrepancies or potential errors that software alone might overlook. Your advisors should also regularly meet with your fund managers to review financial details and verify accuracy rather than simply relying on software outputs.

Specialized Services for Funds, Management Companies, and General Partners

Another common pain point in fund administration is a lack of support for auxiliary entities like management companies and general partner entities. Traditional fund administrators often focus solely on the fund — leaving investment managers to juggle separate vendors for operational needs like payroll, cash management, and audit support.

Your service provider should be able to fill this gap by offering a full suite of services for the fund and its auxiliary entities. Whether you need services for the entire group or just the management company while the general partner entity supports fund operations, finding tailored solutions to fit your needs is possible.

Sample Case Study

An investment fund, a company based in London with one domestic and two offshore funds, switched administrators three times because they struggled to find a provider to competently handle both the fund administration and operational needs of the management company.

Once they finally found comprehensive fund administrative support, their advisor stepped in as an outsourced CFO — streamlining financial operations and providing audit support (including drafting financial statements and communicating with auditors). The team remained a constant presence, guiding the company through key transitions.

Seamless Tax and Audit Support

Beyond fund administration, tax compliance and audit support are essential for reducing operational disruptions.

The right service provider can act as a liaison between your fund and external audit teams — drafting financial statements, communicating with auditors, and preparing allocation schedules. This audit support minimizes the disruption that typically occurs during audit fieldwork to create a smooth audit process for the fund and auxiliary entities.

In addition to audit support, a full-service provider can prepare tax filings — including K-1s for investors, pushing them out sooner and more efficiently than most fund administrators. With a tax consulting arm that specializes in complex transactions, your provider can also offer valuable tax advice on fund operations, acquisitions, and other critical financial activities for investment managers.

Tailored Services for SPVs

SPVs are mini-funds that, while less complex than traditional funds, still require specialized knowledge and experience.

If you are happy with your existing fund administrator but need a cost-effective solution for an SPV, a fund administration service provider can handle these smaller entities — providing just the right level of service to supplement your needs.

Building Lasting Relationships

Investment fund administration can feel like a revolving door. However, building long-term, stable relationships can foster deeper understanding and continuity, ultimately benefiting fund operations and growth.

Once you have worked with a consistent team for many years, you will usually experience better-aligned services that evolve to meet your needs over time.

How MGO Can Help

At MGO, we provide comprehensive fund administration services that go beyond the traditional scope. Combining technology with a human touch and deep experience and insight, we offer integrated support across your funds, management companies, and general partner entities.

Our dedicated team can help you maintain accuracy, verify compliance, and gain greater peace of mind. If you are looking for a fund administrator that offers a full spectrum of services, reach out to MGO’s Private Equity and Venture Capital team today to learn how we can support your investment fund needs.

The post Why You Need Comprehensive Investment Fund Administration Services appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Implementing public-company-level internal controls early on can help your private company prepare for a potential IPO or acquisition, ultimately reducing the risk of adverse disclosures and easing your transition.
• Private companies experiencing fast growth can benefit from stronger controls to prevent fraud and other errors, so that financial data remains reliable no matter how big they scale.
• If you enhance your internal controls, you can increase your credibility with investors, banks, and other stakeholders — potentially lowering costs and adding financial security.
• If you are in an industry with public peers or high security standards (like utilities or tech), you might benefit from adopting similar control measures to maintain competitiveness and stakeholder confidence.

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Often viewed as a “public company problem,” private organizations may want to consider implementing internal controls similar to Sarbanes-Oxley (SOX) Section 404 requirements. The inherent benefits of a strong control environment may be significant to a private company; they enhance accountability throughout the organization, reduce risk of fraud, improve processes and financial reporting, and provide more effective engagement with the board of directors. 

While not always smaller, private organizations often have limited resources in specialty areas, including accounting for income tax. This resource constraint — with the work being performed outside the core accounting team — combined with the complexity of the issues means private companies are ideal candidates for, and can achieve significant benefit from, internal controls enhancements.

Thinking ahead, there are five reasons private companies may want to adopt public-company-level controls:

1. Initial Public Offering (IPO) — Walk before you run! If the company believes an IPO may be in its future, it’s better to “practice” before the company is required to be SOX compliant. A phased approach to implementation can drive important changes in company culture as it prepares to become a public organization. Recently published reports analyzing IPO activity and first-time internal control over financial reporting (ICFR) assessments reveal that adverse disclosures on internal controls are three times more likely to be made during a first-time assessment. Making a rapid change to SOX compliance without proper planning can place a heavy burden on a newly public company.
2. Private Equity (PE) Buyer — If it is possible that the company will be sold to a PE buyer, enhanced financial reporting controls can provide the potential buyer with an added layer of security or confidence regarding the company’s financial position. Further, if the PE firm has an exit strategy that involves an IPO, the requirement for strong internal controls may be on the horizon.
3. Rapid Growth — Private companies that are growing rapidly, either organically or through acquisition, are susceptible to errors and fraud. The sophistication of these organizations often outpaces the skills and capacity of their support functions, including accounting, finance, and tax. Standard processes with preventive and detective controls can mitigate the risk that comes with rapid growth.
4. Assurance for Private Investors and Banks — Many users other than public shareholders may rely on financial information. The added security and accountability of having controls in place is a benefit to these users because the enhanced credibility may affect the organization’s cost of borrowing.
5. Peer-Focused Industries — While not all industries are peer-focused, some place significant weight on the leading practices of their peers. Further, some industries require enhanced levels of security and control. For example, utility companies, industries with sensitive customer data (financial or medical), and tech companies that handle customer data often look to their peer groups for leading practices, including their control environment. When the peer group is a mix of public and private companies, a private company can benefit from keeping pace with the leading practices of their public peers.

Private companies are not immune from intense stakeholder scrutiny into accountability and risk. Companies with a clear understanding of the inherent risks that come from negligible accounting practices demonstrate the ability to think beyond the present and to be better prepared for future growth or change in ownership.

How MGO Can Help

We offer a comprehensive approach to internal control implementation, personalized to meet your private company’s unique needs. Our team’s experience in audit, risk management, and advisory can help your business establish robust controls that enhance accountability, reduce fraud risk, and prepare for the future — whether that looks like growth or a public offering.

Whether you are preparing for an IPO, meeting private equity expectations, or merely enhancing your operational efficiency, our team provides the guidance and the tools needed to help you navigate any complexity with confidence. To learn more about how we can assist your business, reach out to us today.

The post Why Private Firms Benefit from Public Controls appeared first on MGO CPA | Tax, Audit, and Consulting Services.