June 12, 2019 Almost two years after the “opportunity zone” tax break became law, and almost two months after the Trump administration clarified how private equity firms, venture capitalists and other investors can qualify for the tax break, only a handful of people have started funds that focus on operating businesses. “The relative tax benefits are actually better for investing in operating businesses, particularly those with heavy capital assets,” said Jonathan Tower, managing partner at Arctaris, an impact investment fund manager based in Boston. Tower is planning to raise over $500 million for an opportunity zone fund and spend it on up to 25 primarily industrial and manufacturing companies, including some that he’ll shepherd through mergers and acquisitions with other companies.

Arctaris’ approach is somewhat unique, however. “Traditional private equity is not used to selecting companies based on their place,” Tower said, “and they probably don’t have as good deal-sourcing relationships in those areas.” The Arctaris opportunity zone fund also includes a $15 million guarantee — from the national Kresge Foundation, which focuses on cities — that will help protect investors if the fund loses money.