Small Block

Capital Deployment Opportunity

Vehicles and positions through which capital is put to work with upside for the person or institution deploying it.

Funds and pooled vehicles

  • Alternative Asset Fund PlacementsAn alternative asset fund placement is the sale of interests in a private fund investing in assets such as private equity, private credit, real estate or infrastructure, usually made without SEC registration under the exemption for transactions not involving any public offering. Most such placements rely on Rule 506 of Regulation D, which Congress directed the SEC to open to general solicitation when every purchaser is an accredited investor and the issuer takes reasonable steps to verify that status.
  • Private Equity and Venture Capital Funds (PE and VC)Private equity and venture capital funds are privately offered pooled vehicles, usually limited partnerships, that buy stakes in companies and stay outside investment-company registration by having no more than 100 beneficial owners (250 for a qualifying venture capital fund of up to $10,000,000) or only qualified purchasers. An adviser solely to venture capital funds is exempt from investment adviser registration, under an SEC definition of venture capital fund that limits non-qualifying assets and leverage.
  • Qualified Opportunity Funds (QOFs)A qualified opportunity fund is an investment vehicle, organized as a corporation or partnership, that holds at least 90 percent of its assets in qualified opportunity zone property; investors who put capital gains into one within 180 days can defer tax on those gains and, after ten years, exclude its appreciation. For amounts invested after December 31, 2026, the deferral runs five years from the investment date instead of to a fixed date.
  • Qualified Rural Opportunity Funds (QROFs)A "qualified rural opportunity fund" is a qualified opportunity fund holding at least 90 percent of its assets in qualified opportunity zone property located in zones made up entirely of a "rural area", defined as any area other than a city or town of more than 50,000 inhabitants and any urbanized area contiguous and adjacent to such a city or town. For amounts invested after December 31, 2026, a five-year investment in one raises the investor's basis by 30 percent of the deferred gain, compared with 10 percent for other qualified opportunity funds.
  • Real Estate Investment Trust Shares (REITs)REIT shares are ownership interests in a real estate investment trust, a federal tax classification for an entity that elects the status, is beneficially owned by 100 or more persons, and earns most of its income from and holds most of its assets in real estate; a qualifying REIT deducts dividends it pays, so its income is taxed mainly to shareholders. Shares may be publicly traded or sold privately, and are securities under federal law.

Equity positions

  • Co-Investments and Joint Ventures (JVs)A co-investment is a direct investment made alongside a fund or lead sponsor in a single deal; a joint venture is two or more parties combining capital or assets in a shared business. For federal income tax, an unincorporated joint venture is generally treated as a partnership, whose income passes through to the partners rather than being taxed to the venture.
  • Common EquityCommon equity is the residual ownership class of a company, usually common stock, entitled to whatever value remains after creditors and preferred holders are paid and typically carrying voting rights; its rights are set by state corporate law and the company's charter. Common stock is a security under federal securities law, so its sale must be registered or fit an exemption, and dividends on it from domestic corporations can be qualified dividend income taxed at capital gain rates.
  • Crowdfunded Equity TranchesA crowdfunded equity tranche is a portion of a company's or project's equity sold to the public under the Securities Act crowdfunding exemption, which requires the offering to run through a registered broker or funding portal. Under current SEC rules an issuer may raise up to $5,000,000 in 12 months this way, and a non-accredited investor's purchases across all crowdfunding offerings are capped at the greater of $2,500 or 5 percent of income or net worth (or 10 percent, up to $124,000, for higher earners).
  • General Partner Interests and Entities (GPs)A general partner (GP) manages a partnership or fund, usually for the sponsor, and a GP interest is its stake: typically a small capital commitment plus a share of profits (carried interest). For federal tax, gain on a partnership interest held in connection with the performance of substantial services in an investment business is long-term only if held more than three years.
  • Limited Partners, Core QOF Members, and Interests (LPs)Limited partners and core members are the passive investors who hold equity in a fund, including a qualified opportunity fund organized as a partnership; as partners they are taxed on their distributive shares of the fund's income and gains rather than the fund paying tax. Only the part of an investor's QOF interest funded with deferred capital gain receives the opportunity zone tax treatment; any other money invested is treated as a separate investment.
  • Members, Shareholders, and Individual PartnersMembers own LLCs, shareholders own corporations, and partners own partnerships; each holds an equity interest whose rights are set by state law and the entity's governing documents. For federal income tax, a multi-member LLC is treated as a partnership by default, partners are taxed on their shares of partnership income rather than the partnership being taxed, and shareholders of a domestic corporation are taxed on dividends, which can be qualified dividend income taxed at capital gain rates.
  • Preferred Dividend Yields and EquityPreferred equity is an ownership class with priority over common equity for dividends and for payment on liquidation, usually in exchange for limited or no voting rights; the preferred dividend yield is its stated dividend divided by its price. Its terms come from state corporate law and the issuer's charter, and federal law treats it as a security; dividends on preferred stock of domestic corporations can be qualified dividend income taxed at capital gain rates, a treatment made permanent in 2013.
  • Tax Credit Equity Investors and PlacementsTax credit equity is an ownership interest bought in a project or entity in order to claim the federal tax credits it generates, chiefly the low-income housing credit, the new markets tax credit and the rehabilitation credit for certified historic structures. A placement is the transaction, usually arranged by a syndicator, in which that equity is sold to investors.

Lending, deposits and bonds

  • Certificates of Deposit (CDs)A certificate of deposit is a time deposit held for a fixed term at a stated rate, usually with a penalty for early withdrawal; federal law counts funds evidenced by a bank's certificate of deposit as deposits for FDIC insurance. Deposit insurance at banks and share insurance at federally insured credit unions, where the equivalent product is a share certificate, are capped at a standard maximum of $250,000.
  • Commercial Banks and Trust CompaniesFor capital deployment, banks lend and invest their depositors' funds, and trust companies invest assets they hold for others. Regulators take a bank's Community Reinvestment Act record into account when it applies for a new charter, deposit insurance, a branch, a relocation, a merger or an acquisition.
  • Commercial Infrastructure Bonds"Commercial infrastructure bonds" is a market description, not a statutory term, for debt that finances infrastructure such as airports, ports, water, sewer or energy facilities used or operated by private businesses. When a state or local government issues such bonds, federal tax law treats them as private activity bonds whose interest is tax-exempt only if they fit a qualified category, such as exempt facility bonds.
  • Community Development Financial Institutions (CDFIs)For a capital provider, a CDFI is an intermediary that places loans and equity investments in its investment area or with its targeted population. Congress created the Community Development Financial Institutions Fund to invest in and assist CDFIs, including by enhancing their liquidity.
  • Municipal and Governmental Bond Institutional HoldersInstitutional holders of municipal and governmental bonds are banks, insurers, mutual funds and other institutions that buy debt issued by states, local governments and their agencies, whose interest is generally excluded from federal gross income. Banks and other financial institutions generally cannot deduct interest expense allocable to tax-exempt bonds they buy, except for designated small-issuer "qualified tax-exempt obligations" (bank-qualified bonds).

Tax credits and incentives

  • Historic Tax CreditsThe federal historic tax credit, which the Internal Revenue Code calls the rehabilitation credit, equals 20 percent of the qualified rehabilitation expenditures on a certified historic structure, taken ratably over five years beginning when the building is placed in service. Investors usually claim it by buying equity in the entity that owns the building.
  • New Markets Tax CreditsThe new markets tax credit lets an investor claim a federal credit for a qualified equity investment in a qualified community development entity (CDE): 5 percent of the investment on each of the first three credit allowance dates and 6 percent on each of the next four, provided substantially all the cash goes to qualified low-income community investments. Public Law 119-21 removed the end date on the credit's annual allocation, which now applies for each calendar year after 2019.
  • Section 139L: Interest on Loans Secured by Rural or Agricultural Real PropertySection 139L lets a qualified lender, such as an FDIC-insured bank or a regulated insurance company, exclude 25 percent of the interest it receives on a qualified real estate loan from its gross income. A qualified loan is one made after July 4, 2025, secured by real estate substantially used for agricultural production, fishing or seafood processing, or aquaculture.

Environmental credits

  • Water Credits (ESG)Water credits are units representing a measured water benefit, such as water restored, conserved or kept clean, that companies fund or buy toward environmental, social and governance (ESG) goals. They are a voluntary market instrument; no Act of Congress creates them.

Returns

  • Capital Gain AllocationsA capital gain allocation is the share of a partnership's or fund's capital gains assigned to each partner, which each partner reports separately and is taxed on whether or not cash is distributed. The partnership agreement sets each partner's share, but an allocation that lacks substantial economic effect is disregarded and the share is instead determined by the partner's interest in the partnership.
  • Carried Interest and General Partner Promotes (GP)For a sponsor, a profits interest that pays out only if a deal outperforms set return thresholds, aligning the sponsor's upside with investors'. Federal tax law requires a holding period of more than three years, rather than one year, for long-term capital gain treatment of gains on such interests held in connection with investment services.