2026 Policy Outlook: Implications for private equity

2025 marked a meaningful shift in the private capital policy landscape. Congress preserved key tax provisions, the SEC refocused its agenda toward capital formation, and the House passed the most significant bipartisan capital markets legislation in over a decade. For private equity, the signal is clear: the policy framework supporting private capital is expanding.

In 2026, the policy agenda moves from direction-setting to implementation. The SEC’s rulemaking agenda is now in motion. Retail investors are gaining access to private markets through new fund structures and retirement vehicles. Congress is working to finalize both a capital formation package and a digital asset regulatory framework. At the same time, scrutiny around PE’s role in sectors like healthcare and housing is intensifying, while private credit is drawing greater regulatory attention.

For PE firms, the question is no longer whether the policy environment is moving in your favor. It is. The question is whether you are building the operational infrastructure to capitalize on it before the window shifts. 

This outlook reviews key policy developments from 2025 and highlights what PE firms should prepare for in 2026.

I. 2025 in review

The policy environment shifted meaningfully in 2025 across tax, capital markets regulation, and financial innovation. 

Tax reform wins

Congress passed the One Big, Beautiful Bill Act, permanently extending most of the 2017 tax cuts and delivering key wins for private capital. Here are the highlights:

• Carried interest preserved. Despite renewed political pressure—including from President Trump—efforts to tax carried interest at ordinary income rates failed. Fund economics remain intact, and emerging managers avoided a disproportionate hit.

• QSBS expanded. Section 1202 qualified small business stock (QSBS) was not only preserved but expanded: the asset cap increased from $50M to $75M, the individual benefit cap rose from $10M to $15M, and a phased exclusion now allows partial benefits starting at a three-year holding period. While traditional buyout strategies may see limited benefit, growth equity and early-stage investment strategies could benefit significantly.

• R&D expensing restored. Full and immediate expensing of R&D costs was permanently reinstated and applied retroactively for small businesses. For PE portfolio companies investing in product development, this reduces tax obligations and frees up capital.

199A here to stay. The 20% qualified business income deduction under Section 199A was made permanent. While PE funds themselves generally don’t qualify, portfolio companies structured as pass-through entities benefit directly, lowering their effective tax rate and improving fund returns.

A shift in regulatory posture

The SEC under Chairman Paul Atkins pivoted sharply away from the regulatory expansion and private fund scrutiny of the Gensler era, refocusing the agency on capital formation, materiality, and market efficiency.

• Capital formation as a priority. The SEC’s Spring 2025 regulatory agenda centered on lowering barriers to raising capital in both public and private markets. Early actions included new guidance making Rule 506(c) general solicitation more workable, allowing investor self-certification for offerings with minimum investment thresholds that mirror the accredited investor financial thresholds.

• Reducing regulatory burdens. The Commission withdrew a number of Gensler-era proposals that would have imposed significant compliance obligations on private fund managers related to cybersecurity risk management, vendor due diligence, custody, and the use of AI. The SEC also pushed back compliance dates for the new Form PF requirements, with a broader review of Form PF expected to ensure reporting serves regulatory objectives without unnecessary burden.

• A more favorable exit environment. Chairman Atkins outlined an agenda to revitalize U.S. public markets by lowering the costs and burdens of going—and remaining—public. This includes scaled disclosure requirements that focus on materiality, litigation reforms, and improvements to corporate governance and the proxy process. A more hospitable path to public markets means better exit opportunities for PE portfolio companies. 

Financial modernization and innovation

• Retailization momentum. Perhaps the most consequential shift for private equity came through changes to enable more retail investors to access private capital. The SEC reversed longstanding staff guidance that limited the ability for closed-end funds to invest in private funds, opening the door for retail capital to access private equity and credit through registered fund vehicles. President Trump also issued an executive order directing the DOL and SEC to facilitate the inclusion of alternative assets—including PE, private credit, real estate, and digital assets—in 401(k) plans.

• Digital assets and tokenization. Developing a crypto regulatory framework is a top-tier priority for this administration. The SEC launched Project Crypto, an initiative aimed at integrating blockchain-based infrastructure into traditional financial markets. Chairman Atkins has framed tokenization as a transformative force for financial infrastructure, and the SEC issued no-action relief allowing the Depository Trust Company to pilot tokenized securities settlement. Congress is also working to pass a digital asset market structure framework, in addition to the stablecoin framework that was signed into law. 

These developments highlight a major structural shift: Private capital is increasingly becoming part of the mainstream investment ecosystem.

II. 2026 outlook

The policy direction established in 2025 now moves into the implementation phase. Here’s where PE firms should focus their attention.

Capital formation: The INVEST Act and SEC agenda

Congressional action. The House passed its capital formation package—the INVEST Act—late last year, and the strong bipartisan vote provides real momentum for these provisions to ultimately be signed into law. For private equity, several provisions are particularly relevant. This legislation would raise the private fund adviser registration threshold from $150M to $175M and index it for inflation, a modest but meaningful step for smaller and emerging managers who serve as critical capital sources for small businesses. The INVEST Act also addresses a structural constraint that has limited business development company (BDC) investment for over a decade, helping expand a key channel of capital for growth-stage companies. In addition, the bill broadens pathways for retail investors to access private funds through registered fund vehicles, preserving investor protections while allowing more individuals to participate in private market returns.

Taken together, these provisions reflect a broader policy shift: lawmakers are increasingly focused on modernizing capital formation rules to expand access to both capital and investment opportunities across the private market ecosystem, while making it easier for companies to go public.

The Senate Banking Committee has signaled capital formation is a priority, but timing will be an issue. With a crowded 2026 agenda, midterm elections approaching, and crypto consuming much of the bandwidth, the legislative window is narrowing. Engagement from the ecosystem will be critical to ensure these priorities don’t slip behind competing issues.

SEC agenda. At the SEC, the rulemaking agenda includes initiatives to simplify exempt offerings, expand accredited investor pathways, and build on the 506(c) guidance. But bandwidth is a real constraint: staff attrition, reduced headcount, and the volume of crypto-related workstreams will slow progress. Bipartisan congressional support could help with prioritization.

But a more favorable regulatory environment does not mean the absence of oversight. The SEC’s Division of Examinations issued risk alerts reinforcing that marketing practices, valuation policies, fee disclosures, and conflict management remain core exam priorities for private fund advisers. The Marketing Rule continues to draw examiner scrutiny, particularly around testimonials, endorsements, and third-party ratings. Reg S-P obligations and existing compliance frameworks are not going away.

Liquidity: Making exits viable again

Make IPOs great again. The Atkins SEC has made revitalizing U.S. public markets a central priority, focusing on the frictions that have made going—and staying—public less attractive for growth-stage companies. The Commission is reexamining the regulatory framework with an emphasis on materiality, including efforts to scale disclosure requirements based on company size and maturity, simplify reporting obligations, and address concerns that the current reporting regime incentivizes short-termism while imposing disproportionate costs on smaller public companies. As part of this effort, the SEC has begun a comprehensive review of Regulation S-K—the core framework governing public company disclosures—which is aimed at modernizing a disclosure regime that many market participants believe has grown overly complex and disconnected from its original focus on financially material information. Rulemaking proposals are expected to follow later this year. 

Beyond disclosures, the SEC is examining proxy process and governance reforms to depoliticize the shareholder proxy process and reduce litigation pressures that discourage companies from entering the public markets. In a notable shift, the Commission has already indicated it will no longer block registration statements for companies that adopt mandatory arbitration provisions, an approach that could reduce securities litigation exposure for newly public companies. Taken together, could lower the cost of being public and make IPOs a more viable path for growth companies.

Secondary market liquidity. Expanding investor access to private capital will inevitably raise the importance of secondary market infrastructure. As private markets open to a broader investor base through registered funds and retirement vehicles, liquidity expectations will evolve. Private assets remain inherently long-duration, but a larger and more diverse investor base increases pressure for mechanisms that allow capital to change hands before a traditional exit. Policymakers and market infrastructure providers are beginning to explore ways to support this evolution, including easing regulatory friction around private secondaries and experimenting with new trading and settlement infrastructure.

QSBS changes also have liquidity implications. The phased exclusion—now providing partial benefits at three years rather than requiring a full five-year hold—may accelerate exit timelines for growth equity investments in qualifying companies.

Bottom line: The 2026 policy environment promotes a favorable exit environment for PE. A more hospitable regulatory environment could strengthen the IPO pipeline, increase liquidity options for founders and investors, and better align U.S. markets with long-term innovation and economic growth. But macro uncertainty and market dynamics —including interest rate trajectory and trade policy uncertainty—will ultimately influence liquidity.

Retailization: Where policy meets fund operations

Retailization—the push to democratize access to private markets—is arguably the most consequential policy development for PE firms heading into 2026. Multiple access channels are expanding simultaneously, and each carries implications for how funds are structured, marketed, and managed.

Registered fund vehicles. One path for expanding retail access to private markets is through registered fund structures. The SEC reversed its prior guidance limiting closed-end funds to holding no more than 15% of their assets in private funds, opening the door for registered vehicles to allocate more meaningfully to private equity and private credit strategies. Following the reversal, there has been a noticeable uptick in applications for interval funds and tender offer funds seeking to incorporate private market exposure—structures that can offer retail investors access to private assets without accredited investor requirements or high minimums.

At the same time, the SEC has emphasized that broader access must be paired with stronger investor protections. The agency has signaled that registered funds pursuing private market strategies will face heightened expectations around disclosures, including detailed information on fees, investment strategies, risks, due diligence practices, and prominently disclosed liquidity terms. 

Registered funds—particularly interval funds and closed-end funds—are poised to serve as the bridge between retail capital and private markets, offering a framework that balances access with regulatory oversight. Valuation practices and liquidity disclosures will likely be a focus for exam and enforcement as these retail vehicles grow and scale.

Retirement access. Expanding retirement plan access to private markets is emerging as one of the most consequential shifts in capital formation policy. Following President Donald Trump’s August 2025 executive order directing regulators to broaden access to alternative investments in defined-contribution plans, the U.S. Department of Labor has issued a proposed rule clarifying how ERISA fiduciary duties apply to the selection and monitoring of private market investments in 401(k) plans. The proposal does not relax fiduciary standards, but instead establishes a process-driven framework for evaluating alternatives, emphasizing valuation, liquidity, fees, and fiduciary expertise. This effort is expected to provide clearer pathways, including potential safe harbors, for incorporating private market assets through diversified fund structures in retirement accounts, and is being closely coordinated with the SEC.

The policy case for expanding access has been building: public pension funds have allocated to private equity and private credit for decades, while workers in 401(k) plans—who collectively hold more than $12 trillion in assets—have largely been excluded from those same strategies. The primary barrier has historically not been regulatory prohibition but litigation risk under ERISA. Plan fiduciaries face significant legal exposure if illiquid or complex investments underperform, which has led many sponsors to avoid private market options regardless of their potential diversification benefits. Clearer fiduciary frameworks or safe harbors would not open the floodgates immediately, but they could remove the legal ambiguity that has discouraged adoption and provide a path for 401(k)s to become a meaningful source of long-duration capital for private funds, while providing retirement plan participants with potential diversification and return benefits.

Accredited investor modernization. The SEC and Congress are both pursuing expanded pathways to accreditation beyond the current wealth-based test. The INVEST Act creates new pathways to accreditation based on financial sophistication, such as education, professional credentials, and exam-based qualifications, rather than relying solely on wealth thresholds. The legislation reflects a broader bipartisan view that the current framework is outdated and unnecessarily restricts participation in private markets. At the same time, the SEC is examining potential updates through its own rulemaking agenda, and Chairman Paul Atkins has emphasized the need to modernize capital formation rules and better align investor eligibility with financial sophistication, and is expected to move forward with rulemaking soon. 

Taken together, these developments signal growing momentum on both the legislative and regulatory fronts, making updates to the accredited investor framework a realistic possibility in 2026. If the definition expands, however, the next question becomes distribution: how newly eligible investors gain access to quality private market opportunities. That dynamic could shift the conversation toward the role of wealth platforms, registered vehicles, and investment professionals in serving as the primary access points for private market exposure.

Operational implications. For private equity firms, broader retail participation brings new operational expectations. As retail participation increases, so does the need for more frequent valuations, faster reporting, and enhanced disclosures around risk, liquidity, and conflicts. Recent redemption pressure in certain retail-focused private credit vehicles has already provided an early test of how these structures behave during periods of market stress. While the scale remains manageable, the episode highlights the core challenge regulators are focused on: aligning liquidity expectations with inherently illiquid assets. PE firms that are building the infrastructure for transparent, timely reporting and investor communications now will be positioned to capture this capital. 

Private credit: Growth brings scrutiny

Private credit has expanded rapidly since the financial crisis, with global assets projected to exceed $3 trillion before the end of the decade. That growth is attracting attention from policymakers concerned about how private credit interacts with the broader financial system. The industry’s growing interconnectedness with banks and insurance companies sits at the center of the debate. Private equity platforms have pursued acquisitions and partnerships with insurers to access long-duration capital, while banks maintain indirect exposure through financing arrangements such as fund-level credit facilities and other funding relationships. These linkages can make it more difficult for regulators to assess risk across fund complexes, even though immediate risks appear limited due to moderate leverage and long-term capital lockups. 

Scrutiny is increasing across the political spectrum. Democratic Senators have urged federal banking regulators to increase oversight of private credit markets and monitor the growing connections between banks and nonbank lenders. At the same time, former SEC Chairman and current SDNY head Jay Clayton has raised concerns about how private funds value illiquid assets and move them between affiliated vehicles. SEC Chairman Atkins has also highlighted valuations, liquidity, and fee transparency as areas requiring guardrails to prevent lower-quality assets from being pushed onto retail and retirement investors.

Recent market developments have reinforced these concerns. Several retail-oriented private credit vehicles have imposed or approached redemption gates, highlighting the tension between illiquid underlying assets and investor expectations of periodic liquidity. AI-driven disruption—particularly in software and technology companies that represent a large share of private credit lending—could test underwriting assumptions across portfolios. Treasury Secretary Scott Bessent has pointed to these dynamics as an area regulators are monitoring closely, noting that private credit has not yet been tested through a full credit cycle at its current scale.

Private credit is unlikely to face prudential regulation, but it will be regulated, and the scrutiny is increasing in direct proportion to the industry’s push into retail and retirement distribution. For SEC exams, private fund valuation practices, fees and expenses, and conflict management in private funds remain core focus areas. The National Association of Insurance Commissioners (NAIC) adopted guidelines scheduled to take effect in 2026 to allow state insurance regulators to challenge credit ratings that appear inflated or conflicted, and is considering limits on related-party transactions. As more traditional buyout firms launch credit strategies, the potential for misalignment and conflict grows.

Other issues to watch

Tokenization: Infrastructure, not hype

For private equity, crypto’s relevance is increasingly about market infrastructure rather than the asset class itself. Policymakers at the SEC and in Congress are focused on defining market structure for digital assets, but the more immediate development for private markets is the potential role tokenization could play in modernizing financial plumbing and expanding investor access. While Congress continues to work toward a broader digital asset market structure framework, the SEC has been advancing this agenda through guidance, no-action relief, and Project Crypto’s joint workstreams.

For PE, the practical implications are emerging but still early. Some private credit and larger PE firms are running proof-of-concept work on tokenized fund interests to enhance transferability and lower investment minimums. Stablecoin infrastructure could eventually streamline capital calls and distributions, and smart contracts may improve fund administration and compliance workflows. But broader adoption will depend on interoperability with legacy systems and greater regulatory clarity around custody and settlement.

AI: An emerging compliance and operational consideration

AI adoption is accelerating across private equity portfolio companies and fund operations, from deal sourcing and due diligence to portfolio company workflow automation. The federal regulatory landscape remains relatively accommodating, reflecting the administration’s light-touch, pro-innovation posture. The SEC has signaled an engagement-first approach to AI adoption, encouraging firms to experiment within existing regulatory frameworks through pilots, no-action requests, and early dialogue rather than prescriptive rulemaking. But existing anti-fraud and disclosure obligations apply regardless of the technology used, and both the SEC and FTC are paying closer attention to exaggerated AI claims—”“AI washing”—in fund marketing and portfolio company communications. 

While the federal posture remains accommodating, states are increasingly filling the void. Colorado, California, and New York are advancing frameworks governing AI use in areas such as hiring, consumer-facing decisions, and automated decision-making, areas that touch portfolio operations directly. For PE firms with portfolio companies operating across multiple jurisdictions, the growing patchwork creates a real compliance surface area, particularly in sectors like financial services and healthcare, where AI deployment intersects with existing regulatory regimes. Formalizing AI governance policies now is a practical, near-term step. 

Sector-specific scrutiny: Healthcare and housing

In addition to private credit, PE is facing scrutiny related to sector-specific investments in housing and healthcare—areas where bipartisan pressure is unlikely to ease regardless of broader deregulatory trends.

• Single-family housing. As part of his broader affordability agenda, President Trump has signed an executive order that aims to prevent large institutional investors from acquiring single-family housing, and used his State of the Union address to pressure Congress to codify these restrictions. Similar proposals, which have historically been associated with progressives, have been included in a bipartisan housing package that is expected to be signed into law. While institutional ownership represents a relatively small share of the overall housing market, the policy posture reflects a growing willingness among policymakers to target specific investment models in sectors tied to cost-of-living pressure, creating a potential slippery slope for other sectors.

• Healthcare. While federal regulators have relaxed their focus on PE-backed healthcare transactions, states are stepping in to fill that gap. California recently enacted legislation that grants the state greater authority to scrutinize PE investments in healthcare providers; Massachusetts, Oregon, and a handful of others have enacted similar laws. PE firms with healthcare portfolios should expect increased state-level compliance obligations, longer transaction review timelines, and more public scrutiny around outcomes. 

PE and insurance regulation

Over the past decade, private equity firms have acquired or formed partnerships with life insurers to access large pools of longer-duration liabilities that can be invested in private credit and structured finance strategies. As the model has scaled, state insurance regulators, working through the NAIC, have begun reviewing whether existing risk-based capital frameworks properly capture the risks of these assets. In 2026, regulators are expected to advance new capital treatment for CLO exposures, increase scrutiny of privately rated credit assets, and push for more transparency around affiliated asset management relationships between insurers and private equity firms.

These efforts are closely tied to concerns about the resilience of the private credit market. Insurers have become one of the largest allocators to private credit strategies, meaning disruptions tied to rising defaults, valuation disputes, or liquidity pressures could increasingly show up on insurance balance sheets. If private credit continues to expand without significant stress, the regulatory response is likely to focus on capital calibration and disclosure. But if volatility emerges in private credit portfolios, insurance regulation could quickly become the primary channel through which policymakers examine the systemic implications of private market growth.

Key Takeaways

The policy environment for private equity is shifting from debate to implementation, and it’s the most favorable it has been in years. Capital formation initiatives, increasing retail access, and financial infrastructure modernization are expanding the industry’s opportunity set. But with broader participation comes greater scrutiny, particularly around valuation, liquidity management, and conflicts.

The message for PE firms: take advantage of a favorable environment to raise capital, expand investor access, and pursue exits—but make sure your compliance infrastructure keeps pace. The firms that build strong governance, reporting, and operational foundations now will be best positioned to capture the next phase of private market growth—regardless of which direction the regulatory pendulum swings next.

Driving the conversation

From preserving carried interest to expanding retail access to private funds, the wins of 2025 and the opportunities ahead in 2026 reflect sustained, data-driven engagement with Congress, the SEC, and the broader regulatory community. Carta is building both the policy infrastructure that bolsters private markets and the technology infrastructure that helps PE firms operate within them—from fund administration to valuations to investor reporting.

Carta will continue to drive the conversation and serve as the connective tissue between the private capital ecosystem and policymakers. As the regulatory landscape evolves, we are here to help PE firms navigate it.

To stay up to date on the latest PE policy developments, subscribe to our weekly Policy Newsletter, visit the Carta Policy Desk, or connect with us at policy@carta.com.

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