Trump's election: what impact for private equity in the US?
Trump's first term favored private equity with tax cuts and deregulation, despite challenges related to protectionism. From 2025 onwards, investors will be able to exploit a buoyant context, combining promising sector opportunities, lower taxation and incentive deregulation.
The previous Trump administration was beneficial for the private equity sector, thanks to lower taxes, deregulation and a business-friendly environment. However, protectionist policies and limits on interest deductibility have introduced challenges for certain investment strategies. Private equity funds have had to juggle these tax advantages with the risks associated with geopolitical uncertainty.
From 2025 onwards, investors will need to carefully analyze this new context of inflationary and macroeconomic tensions before investing in private markets.
Which sectors to watch?
Trump's election could boost M&A activity in some key sectors. Energy industries, particularly oil and gas, as well as US-based manufacturing, could benefit from a buoyant trend. In addition, crypto-currencies and, more broadly, the new technology sector could benefit from the new government's direction. Renewable energy sectors, on the other hand, could suffer from a lack of government support.
Deregulation and taxation: a boost for SMEs
Donald Trump's emphasis on deregulation could play a stimulating role for US companies, particularly small and medium-sized enterprises. These account for a significant proportion of private equity funds' portfolios. If these measures come to fruition, they could boost investor confidence, aided by increased capital spending and reduced red tape.
On the tax front, the tax cuts announced by Donald Trump could also support US companies by increasing their self-financing capacity. The tax cuts are likely to be moderate, but they will still reinforce the favorable investment dynamic in the US.
Protectionism: a moderate impact for private equity
Protectionist policies, such as tariffs, are mainly aimed at manufactured goods, and therefore have a limited impact on private equity portfolios, which are often overweighted in sectors based on intellectual property and services. So, although some fund-backed companies may be directly affected, diversified portfolios should remain relatively resilient in the face of these measures.
Inflation: lessons from the past
While the return of inflation remains uncertain, recent experience offers some useful lessons. After the Covid-19 pandemic, companies backed by private equity funds were able to protect their margins and maintain revenue and profit growth, despite inflationary pressures and supply chain disruptions. If inflation were to rise again, funds could replicate these strategies to effectively manage this dynamic.
Is now the right time to invest in private equity in the United States?
With the re-election of Donald Trump, the US market is enjoying positive momentum, offering an opportune moment to gain exposure to US private equity. The first measures announced, focused on stimulating economic growth through domestic spending and a more protectionist trade stance, are likely to support US companies. Moreover, this political stance tends to strengthen the dollar, in a context where investors are betting on a favorable economic climate for the US economy.
Wealth management - 09/12/2024
