Fund Managers Sound Alarm as Investors Flee—Beg Congress to Fix Section 899

Wall Street''s usual swagger is gone—replaced by sweaty-palmed pleas for legislative relief. U.S. fund managers are scrambling to stop a full-blown investor exodus, and their Hail Mary? Begging Congress to rewrite the controversial Section 899.

No one''s calling it a panic (yet). But when suits start publicly groveling to politicians, you know the balance sheets must be ugly. The irony? These are the same geniuses who lobbied for the original rules—now crying foul as clients vote with their wallets.

Bonus jab: Nothing unites finance bros faster than realizing their ''innovative tax strategy'' might actually, you know, have consequences.

ICI seeks amendments to the tax bill

The Investment Company Institute (ICI) has warned about the One Big Beautiful Bill, saying its current FORM would cause damage to foreign companies. In a letter sent to the Chairman of the Senate Finance Committee, Senator Mike Crapo, the institute revealed that many portfolio investors would likely retreat from U.S. equities to avoid the impact of the tax bill.

The ICI added that continuous selling by the foreign companies would depress U.S. equity markets, and both U.S. firms and investors would be affected. 

The institute stated that it believes that the current form of Section 899 should clarify its scope. The ICI said the current drafting of the section should avoid discouraging foreign firms from investing in the American equity markets through funds like ETFs and U.S. mutual funds.

The institute revealed that Section 899 intended to fine investment funds and their shareholders by imposing a passive income tax on U.S. equity holdings. According to Section 899, most funds charge fees and a cash-out to foreign investors, which leads to lower earnings for the investment management company. 

ICI says the tax bill will limit foreign investments

Apollo Global Management revealed that foreign firms hold $19 trillion in U.S. holdings, $7 trillion in bonds, and $5 trillion in credit. The ICI stated that it largely supports the government’s effort to protect its business interests in other nations and address the issue of discriminatory foreign taxes.

The institute, however, cautioned that the current drafting of the tax bill would do the opposite. The ICI explained that some foreign governments could be excited to witness capital flight from the U.S. because it would benefit their local equity markets. The institute stated that pulling out foreign investments from the U.S. equity market was not what Section 899 would like to achieve. 

The Investment Company Institute, a representative of the asset management space serving individual investors, had also cautioned on May 30 that the Section 899 provisions could end up limiting foreign investments from other nations. 

The Chief Investment Officer at Tema ETFs, Yuri Khodjamirian, said that European investors would reconsider their U.S. equity holdings if the government suddenly started to tax their income. Khodjamirian warned that the impact on the American equities market would be significantly minimal as many U.S. firms, especially in the S&P 500, are not known for their dividends.

The Tema ETFs chief revealed that dividend yields in the U.S. are quite low. The chief explained that not many firms are paying dividends in the U.S. Khodjamirian said most of the capital earned from dividends is returned to share buybacks in the U.S. equity market.

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