Sovereign wealth funds (SWFs) are an important source of capital for PE funds. According to the Sovereign Wealth Fund Institute, the top ten largest SWFs collectively managed over $7.1 trillion of capital as of January 2022. SWFs generally enjoy favorable tax treatment in the U.S., but that treatment is subject to specific limitations. SWFs typically require separate limited partnership agreement provisions or side letter protections to ensure fund activities do not compromise their favorable tax treatment. In a two-part guest series, Troutman Pepper attorneys Steven D. Bortnick and Morgan L. Klinzing detail critical considerations for any PE sponsor intending to market to potential SWF investors. This first article outlines the U.S. statutory tax treatment of SWFs, as well as some of the benefits, limitations and exemptions that are available. The second article will analyze ways PE funds can be structured to limit negative tax treatment under the tax code to SWF investors from income generated from funds’ commercial activities. See “Why and How Do Middle Eastern Sovereign Wealth Funds, Pension Funds and High Net Worth Individuals Invest in Private Funds?” (Jun. 6, 2013); and “Why and How Do Sovereign Wealth Funds Invest in Private Funds?” (Mar. 28, 2013).