Looking for the upside

The industry did not want a Trump presidency. Now that it’s a reality, what are the silver linings?

Private equity has been digesting the surprising news that the US has elected real estate mogul and former reality television star Donald Trump as their next president. At the same time, Republicans maintained their control of Congress.

“Everyone’s shocked,” one New York-based service provider told sister publication Private Equity International this week. “Most people expected a Democratic administration and a split Congress, meaning business as usual.”

The immediate aftermath in the financial markets was reminiscent of Britain’s vote to leave the EU in June.

And as with the Brexit vote, the private equity industry was at odds with the electorate. A survey conducted by PEI on election day found that 77 percent of the general partners, limited partners and service providers who took part in the poll picked Hillary Clinton – the only qualified candidate, according to one secondaries fund investor – as their next president. Only 15 percent chose Trump.

Now private equity professionals from both camps are predicting what the next presidency will mean for the industry.

Trump has been outspoken about repealing, or at least softening the effects of, regulations passed under the Obama administration. His government will “work to dismantle the Dodd-Frank Act and replace it with new policies”, according to his website.

Reduced regulation would be good for some private equity firms. “One thing he can deliver is less regulation. I can’t hire a sales person because I need a compliance person,” says one general partner who voted for Trump, before adding that most, if not all, of his portfolio companies are being affected by increased regulation.

If the “dismantling” of the Dodd-Frank Act includes the Volcker Rule – which restricts how much of their own capital banks can invest in private investment funds – there will be significant implications for the private equity industry. Banks have been offloading portfolios of private fund interests since the act was introduced and more had been expected; Goldman Sachs, for example, still has more than $6 billion of investments subject to the rule. Secondaries buyers will be monitoring this situation with keen interest.

Secondaries deals may also be affected in the short-term. “I see it affecting transaction volume in the same way Brexit did,” says one London-based lawyer. After Brexit, there was a two-week pause when no secondaries transaction closed, according to another source.

Others say they don’t see any real negatives for the secondaries market. “I don’t think it’s going to stop deals getting done,” says a London-based advisory source, adding that his firm hasn’t revised its projections on year-end closings.

“If anything it adds more certainty: at least you know the outcome of the election now so there’s less of an excuse to hold off closing stuff,” he says.

The industry already appears to be shaking off the shock of a Trump victory. As election promises morph into policy detail, let’s hope for a pleasant surprise.

How will Donald Trump’s election affect the secondaries market? Let us know: marine.c@peimedia.com or adam.l@peimedia.com

PS We will soon be launching the voting for the Private Equity International Awards 2016. If you believe your firm should be on the shortlist, take a moment to let us know the milestones you hit this year.