On February 21, 2025, President Trump issued his America First Investment Policy memorandum, which details measures intended to “make the United States the world’s greatest destination for investment dollars” by facilitating investment by U.S. allies while countering “new and evolving threats” associated with investments from and into countries considered foreign adversaries, principally China. These threats include China’s efforts to “direct and facilitate” inbound U.S. investments in order to acquire critical technology, obtain intellectual property, and gain leverage in strategic industries. The memorandum also highlights continuing U.S. concerns that China is leveraging U.S. investment in certain ostensibly civilian Chinese companies to strengthen its military and intelligence apparatuses. Along with focusing on the national security threats posed by inbound and outbound foreign investment, the investment policy also promotes more streamlined review of, and lower barriers to investment from, countries allied with the United States.
The Trump administration’s investment policy reflects U.S. officials’ changing understanding of national security, which has expanded beyond intelligence and military defense to include matters of trade, technology, and energy policy. While this trend has been underway for some time, it has accelerated under the current administration. In this shifting landscape, it is more important than ever for private equity firms to stay abreast of national security policy developments and consult proactively with counsel regarding approaches to compliance.
Inbound Investment
A key pillar of the policy put forth in the memorandum is that “restrictions on foreign investors’ access to United States assets will ease in proportion to their verifiable distance and independence from the predatory investment and technology-acquisition practices” of foreign adversaries. As part of this approach, the administration intends to create an expedited review process for investments from allied and partner sources that are judged to be sufficiently distant from foreign adversaries. This fast-track process would apply to investments in advanced technology and other important areas, and it would require investors to avoid partnering with foreign adversaries.
Accordingly, in order for private equity firms to gain access to this fast-track process, they may need to first distance themselves from the PRC and other geopolitical rivals of the United States. While it may be challenging for firms to pare back rights or interests from PRC-affiliated investors in investment fund vehicles, any associated costs should be weighed against the possible benefits of fast-track review. Firms should also consider steps to render foreign investors passive where appropriate, as passive investments from foreign investors are explicitly welcomed and encouraged in the memorandum.
Further, firms should note the administration’s intent to expand CFIUS review and enforcement in certain strategic areas. The memorandum states that the administration intends to, in consultation with Congress, protect real estate and farmland near sensitive sites, strengthen CFIUS authority over greenfield investments, limit foreign adversary access to U.S. talent and operations in sensitive technologies (especially those related to artificial intelligence), and expand the range of emerging and foundational technologies within CFIUS’s jurisdiction. When investing in industries or targets that can involve these areas, firms should be prepared for potential scrutiny of such investments for national security concerns.
In addition, the administration intends to cease entering into what it considers “overly bureaucratic, complex, and open-ended” mitigation agreements with investors from foreign adversary countries and instead seek agreements mandating “concrete actions that companies can complete within a specific time.” While investors from allied countries have grown frustrated with lengthy CFIUS reviews and burdensome mitigation agreements, they may find this provision to be a limited remedy, given that it explicitly relates to investments from foreign adversaries, which are more likely to be prohibited outright—rather than permitted with complex mitigation in place.
Private equity will likely be a key target of CFIUS’s expanding enforcement. CFIUS appears poised to continue scrutinizing private equity structures to determine whether they include foreign investors, and if so, what rights and interests such foreign investors have acquired. In doing so, it will be able to exercise its broad authority to request information from firms, including information regarding limited partners that would otherwise be confidential. Accordingly, if private equity funds include investors affiliated with foreign adversary countries, or foreign investors that otherwise present national security concerns, CFIUS has the means to uncover such information. And if CFIUS believes such an investor presents a national security concern within the context of a particular transaction, CFIUS has the authority to mitigate or block an investment where that foreign investor will receive an indirect interest in a U.S. business.
Outbound Investment
The America First Investment Policy also proposes expanding the existing Outbound Investment Rule, a Biden-era regulation that restricts U.S. persons’ investment in certain sensitive industries if there is a nexus to China. For a covered transaction, the rule imposes either a notice requirement or an outright prohibition, and the current targets are China-related companies engaged in the development or production of certain semiconductor, AI, and quantum technologies. The rule’s requirements are trigged by a U.S. person’s knowledge of these China-related technology touchpoints, including both actual knowledge as well as information that could have been obtained through a reasonable and diligent inquiry. Accordingly, reasonable diligence regarding investment activities, including related recordkeeping, is now advisable for many fund investments.
The America First Investment Policy memorandum—as well as an April trade policy report delivered to the President—indicates that new and expanded investment restrictions may be imposed in the coming months, including controls targeting China-related companies engaged in biotechnology, hypersonics, aerospace, advanced manufacturing, or directed energy technology development.
The America First Investment Policy has significant implications for the private equity industry. Not only does the memorandum call for restrictions that specifically target private equity, but the policy also targets the U.S. institutional investors that form the core LP base for many private equity firms, including pension funds and university endowments. Although private equity investments are already covered by the rule—which restricts all U.S.-person investors equally—these explicit references suggest that the administration may single out private equity for extra scrutiny as it considers when and how to enforce the rule.
Private Equity Report Spring 2025, Vol 25, No 1