The majority of the private equity industry did not wake up to news they wanted to hear this morning: real estate mogul and reality TV star Donald Trump had been elected the 45th president of the United States.
In an online ‘exit poll’ run by Private Equity International on Tuesday, 77 percent of general partner, limited partner and service provider respondents chose Democratic nominee Hillary Clinton as their preferred president. Fifteen percent cast their vote for Republican nominee Trump, with a further 3 percent opting for the Libertarian Party’s Gary Johnson.
Markets tumbled – the FTSE 100 index fell nearly 2 percent in early trading – and the dollar weakened against many major currencies, including the euro and the yen, as news of Trump’s victory rippled across the globe. However, initial losses were tempered somewhat after the president-elect struck a conciliatory note in his victory speech.
“For those who have chosen not to support me in the past, of which there were a few people, I’m reaching out to you for your guidance and your help so that we can work together and unify our great country,” he said.
Trump added that while his government will always put America’s interests first, it would “deal fairly with everyone”.
“All people and all other nations. We will seek common ground, not hostility; partnership, not conflict.”
Respondents to PEI’s poll were invited to comment anonymously on their choices and, as one would expect from such an emotionally-charged presidential race, responses were colourful.
One GP, a Clinton supporter, wrote: “Trump is unqualified, dangerously uninformed and a ‘populist authoritarian’ who has an outsized ego. A horrible option for President.”
“Donald Trump comes across as a bully and an ignoramus,” wrote a limited partner. “He would be a poor representation of the United States.”
Just one LP backed Trump, while another cast a vote for Republican speaker of the House of Representatives Paul Ryan.
“I can’t support either of the two main candidates, so I want to indicate the direction I think the Republican party should take in the future,” the LP wrote.
One advisor simply responded: “#Nevertrump”.
Built to survive
On Wednesday morning the financial community was grappling with the implications of the latest wave in 2016’s sea of volatility and uncertainty.
“We don’t believe the election of Donald Trump as US president will have any significant long-term effect upon the ongoing strategies followed by private equity,” Ian Kelly, chief executive of fund administrator Augentius said in a statement this morning.
“Private equity has proven to deliver very good long-term performance to its investors through both favourable and challenging times. While the equity markets and other traded securities may be faced with short-term volatility in the immediate weeks to come, private equity works along a 10-year horizon and is built to survive a range of market conditions.”
In a note this morning, asset manager Unigestion’s Florian Ielpo, head of macroeconomic research, and trader Jeremy Gatto said that what is known of Trump’s economic plans is “remarkably favourable” for the US equity market, but that his foreign policy ambitions and opposition to free trade are “less positive”, especially for emerging economies.
“The dominant theme in markets right now is continued uncertainty,” they wrote.
“With Brexit, we have a longer timeline and the potential for a range of different outcomes. Mr Trump’s actions will have consequences much sooner as he looks for the support of Congress to implement his agenda. With the Republican camp divided, there is a good chance that his most extreme ideas will come to a grinding halt on the floor of Congress and never see the light of day. But who knows? With Mr Trump, America has drifted into political terra incognita, and this will keep weighing on markets’ assessment of risks.”
The private equity industry will be keeping a close eye on the new president’s plans for changes to carried interest taxation.
During his campaign Trump proposed taxing carried interest as ordinary income, but also lowering the highest tax rate on ordinary income to 25 percent. This would effectively increase the tax on carried interest by 1.2 percent, while lowering the tax on management fees, which is treated as ordinary income.
Delegates at the PEI Private Fund Finance and Compliance Forum in San Francisco last month predicted that legislation to close the carried interest tax loophole in the US would be passed within nine months of the new president being sworn in.