Implications of Trump 2.0 on the private markets

Summary 

January 20th brought the US a new presidential administration. Bolstered by his party’s control of congress, President Trump and his team have promised sweeping changes. As we evaluate the impact on investment strategies, we have two initial conclusions.

First, it’s too early to tell what is going to get done so we can’t yet identify definitive responses. We are monitoring progress and will of course factor it into investment decisions and recommendations as it unfolds. The proposed changes have included a broad range of possible implementations across many areas. They vary substantially in terms of both potential impact and degree of difficulty to actually pass and implement.

• Some, including prominent investors, are optimistic, leaning into the theory that beneficial policies—deregulation, tax relief, better border control and less drain from military activity abroad—will outweigh any potential negative consequences. They believe that proposed initiatives are just tactics meant to bring about desired changes and will not actually be implemented or will have minimal impact.
• Others, including most economists and currently, the bond market, are more focused on the potential inflationary impact and drag on growth likely to result from lower immigration (or worse, negative net immigration) and broad-based tariffs. This plus expanded deficit spending (tax cuts are likely; spending is hard to cut) put upward pressure on interest rates and at least initially, the US dollar.

Second, and perhaps more useful, we anticipate that existing major trends will continue to dominate the investment landscape. Particularly for longer-term investors, one president, with potentially as little as a two-year window of legislative support and a thin majority in congress, can only do so much to affect the investment landscape. The policy changes are more likely to speed or slow progress of major trends than to fundamentally change them. We have shared these trends elsewhere including in recent sector outlook papers. They include ”higher for longer” interest rates, which is really a return to long-term norms, sweeping changes from technology particularly AI, climate change, deglobalization and other factors that support ongoing, robust opportunities for private investing. Of course, the devil is in the details. Policy changes will impact specific strategies, possibly profoundly. We list some initial areas of opportunity and concern below and as always, will stay on top of these and continue to communicate and factor them into investment activity.

Macro backdrop

Understanding how Trump 2.0 could reshape the global economy is crucial, with policy changes and their macroeconomic impacts creating both challenges and opportunities for private investors. Expected policy changes can be grouped in four broad categories: fiscal, trade, regulatory environment and immigration.

• Fiscal policy under Trump 2.0 is likely to be expansionary, with the continuation or expansion of tax cuts for corporations and high-income individuals and increased infrastructure spending among the top policy priorities.
• A renewed emphasis on protectionism will headline trade policy, including the use of tariffs and renegotiating trade agreements. Figure 1 illustrates this point showing a significant increase in trade policy uncertainty.
• Deregulation is expected to be a feature of the Trump administration, with policies aimed at reducing regulatory burdens in industries such as energy and finance.
• Finally, the administration is likely to pursue much stricter immigration policies, including tighter border controls, fewer immigrants and potentially deporting undocumented residents.

There is considerable uncertainty around when and to what extent Trump will implement policy changes. Even if he can do so swiftly, the impacts are likely to lag. Shifts in sentiment could influence the economy sooner, and it will likely take a few years for the direct impacts of specific policy changes to fully manifest. Trump’s proposed tariffs are intended to reconfigure supply chains (in favor of US domestic production), which is a very complex endeavor. Globalization has been a multiple-decade process with many benefits and unintended consequences. Similarly, deglobalization is not going to happen quickly or easily. For investors this points to both challenges and opportunities as it unfolds.

Macroeconomic implications

Fiscal policy under Trump 2.0 is likely to boost economic growth. Promised tax cuts, the extension of certain Inflation Reduction Act (IRA) measures and increased government spending could fuel greater consumption and investment. Sentiment, including the expectation of more favorable tax policies, could affect growth ahead of actual policy changes, resulting in somewhat higher GDP as early as 2025.

Deregulation is another net positive for economic growth, with benefits extending beyond the targeted industries. To the extent that banks face lower capital requirements, for example, liquidity will improve, fueling investment and growth across industries. Here too, even the prospect of looser regulations could boost corporate sentiment and in turn investment, over the short term.

The boost to growth, while not insubstantial, is likely to wane, with positive drivers fading as downside pressures outlined below gather strength.

Protectionist measures, including tariffs and stricter trade agreements, could negatively affect long-term growth by reducing productivity through lower competition, hindering innovation and knowledge transfer, diminishing export competitiveness and decreasing overall trade flows. Retaliatory tariffs are likely, and a trade war is possible, which would disrupt supply chains and further weigh on global economic growth.

Tariffs are also likely to drive prices higher, which would reduce real disposable income for US households, limiting growth in consumption and, in turn, GDP. Like most of the expected policy changes under Trump 2.0, tariffs are inflationary.

Tighter immigration controls would reduce labor supply and thereby increase wage pressure. Labor shortages in key sectors could also emerge, which would pose additional challenges for the economy.

Expansionary fiscal policy is inherently inflationary and higher rates will also increase governments’ interest payments. Without significant cuts to other parts of the budget, the deficit will increase significantly.

Interest rates are closely tied to these dynamics. Higher inflation would necessitate tighter monetary policy with the Federal Reserve potentially keeping policy rates higher for longer. Treasury yields, already influenced by inflation expectations, could face additional upward pressure from sustained fiscal deficits. Persistent government borrowing, driven by tax cuts and increased spending, could further strain debt markets, supporting higher long-term yields.

Finally, the US dollar is expected to remain strong in this environment. Higher interest rates and the dollar’s status as a safe-haven currency amid global uncertainties will provide continued support. A robust US dollar could have mixed implications for the US economy, benefiting importers but creating challenges for exporters by reducing the price competitiveness of US goods and services abroad. However, if inflation in the US outpaces that of global peers, the dollar could weaken over time.

To the point about anticipating effects made above, Figure 2 and Figure 3 illustrate how markets already have started to price in potential policy implication into short-term rates, long-term rates as well as the USD as the Trump victory became more likely.

Possible implications outside of the US

There is even greater uncertainty when assessing the impact of Trump 2.0 on economies outside the United States. The interplay of trade policies, geopolitical shifts and economic dependencies makes forecasting highly complex. However, some broad trends and potential outcomes can be considered.

Europe

The implications for Europe are likely mixed over the short term. Increased US demand, spurred by fiscal stimulus
and economic growth, could provide a temporary boost to European exports. While higher tariffs on European goods could offset these gains, Europe might benefit if tariffs are lower than those on comparable Chinese goods. Additionally, some third-party countries may find opportunities amid US-China trade tensions, stepping in to replace disrupted supply chains or filling gaps in global trade.

China

China is likely to bear the brunt of renewed protectionism as higher tariffs, trade restrictions and pressure on Chinese goods slows growth in its export-driven economy (Figure 4). The long-term effects will depend on how global supply chains respond. While some industries may relocate production to other countries, the reconfiguration of supply chains is likely to be uneven, creating uncertainties for both China and its trading partners.

Another potential consequence of Trump 2.0 is increased global spending on defense. Trump has previously criticized NATO member countries for failing to meet the 2% of GDP defense spending target, and his administration has threatened to withdraw US support for countries that do not comply. This could compel European nations to boost defense budgets. This could be positive for the defense sector globally.

Asset classes

Private equity

Less regulation and better exit environment, potentially:

• There is an expectation of increased M&A activity due to reduced regulation, tax cuts, a backlog of deferred realization events, relatively more supportive debt capital markets and higher visibility into the macroeconomic backdrop.
• Increased exit avenues for GPs, including a stronger IPO environment.
• In general, companies’ growth should benefit from relatively sustained US GDP growth. However, the impact of near and medium-term Trump policies could have mixed results on the real economy (wage inflation due to immigration policies, cost inflation due to tariffs, etc.) and cost of debt for sponsors.
• VCs and technology sponsors are hopeful for a rebound in technology M&A.
• Deregulation is expected to benefit certain sectors, such as financials, technology, energy, and healthcare, which are more heavily regulated to begin with. However, within those sectors, there are likely to be both winners and losers depending on the Trump administration’s ultimate policies.
• Increased tariffs are expected to adversely impact profitability of those companies and sectors that are more reliant on offshore supply chains unless they have substantial pricing power.

Benefiting sectors and segments

• Energy and manufacturing: Sectors like conventional energy and onshore manufacturing are poised to benefit from deregulation and policies favoring domestic production. The Trump administration’s support for fossil fuels and reduced environmental regulations could enhance profitability in these areas.
• Larger companies and sectors with less regulation might benefit from deregulation, leading to increased M&A activity.
• Companies with pricing power that can pass increased input cost on to customers.
• More emerging technologies (e.g., AI, cryptocurrencies) may benefit from a lighter regulatory touch expected from a Trump administration.

Suffering sectors

• Companies heavily reliant on global supply chains may face challenges due to tariffs.
• Companies heavily dependent on low cost and/or highly skilled labor might see challenges due to stricter immigration policies.

In the medium term, private equity may need to adapt to a landscape characterized by slowing economic growth, a higher interest rate environment and higher operational costs, focusing more on value creation through controllable operational improvements and strategic repositioning rather than relying solely on financial engineering

Private equity outside the US

• Assessing the impact of Trump 2.0 for private equity outside of the US is even more challenging than assessing the impact for US private equity.
• Likely to be broad-based impacts from global adjustments in supply chains as a result of tariffs and geopolitics.
• Companies exporting to the US in sectors where tariffs are imposed will be challenged.
• Private companies have greater flexibility and might be better positioned to react to an uncertain environment.

Private debt

Overall, the environment for private debt should remain supportive, driven by elevated base rates and a resilient middle market. Additionally, a boost in M&A activity, potentially fueled by a wave of deregulation, could further support the ongoing recovery in deal activity and provide favorable lending terms. Together, these factors should enable private lenders to continue delivering attractive risk-adjusted returns for investors.

• Elevated interest rates generally enhance returns on direct lending portfolios, offsetting the risk of higher borrower default rates. However, the increased likelihood of defaults poses risks to credit portfolios, necessitating close monitoring and proactive risk management by engaging with the borrowers when financial issues emerge.
• A more lenient regulatory environment is likely to stimulate M&A activity, driving an increase in deal flow for direct lenders. This surge in opportunities could enable lenders to be more selective, securing better lending and pricing terms.
• Direct lenders’ focus on middle-market companies may prove to be an advantage going forward. Unlike large multinational corporations, smaller and middle-market firms typically derive a larger proportion of their revenue from domestic markets (Figure 5). This reduces their reliance on exports and limits their exposure to the negative effects of tariffs and potential retaliatory trade measures from other countries which could lead to a smaller impact on the earnings and default risks of the companies in direct lenders’ portfolios.

Effects on the middle market broadly

• The inflationary policies are expected to increase costs for middle-market companies through higher prices for intermediate goods. So far, these companies have managed to protect their margins and earnings by passing on higher costs to consumers. However, if consumer spending weakens and price sensitivity increases, some middle-market companies may face challenges in raising prices, potentially leading to margin erosion and reduced profitability.
• The higher interest rates would prolong the period of high borrowing costs and pressuring middle-market firms’ balance sheets.
• In the short term, middle-market companies may benefit from a boost in GPD growth extending the current period of resilient EBITDA growth and offsetting the potential effects of a prolonged period of elevated interest rates and inflation.
• Medium to long term Trump policies could have mixed effects on economic growth and exert pressure on corporate earnings and heighten the risk of defaults, exposing lenders to higher credit risk.

Benefiting companies and segments

• Companies that rely on local supply chains and domestic consumers are less vulnerable to supply chain challenges compared to globally integrated firms. As a result, they are better positioned to withstand the protectionist policies of the Trump administration. Coupled with economic growth this may support continued earnings growth, ultimately lowering credit risk and enhancing their financial stability.
• US companies competing with foreign firms in the domestic market could benefit from reduced competition thanks to tariffs. This shift could allow domestic firms to capture greater market share, enabling them to expand operations and sustain earnings growth.

Suffering companies

• Companies heavily reliant on exports face higher risks from trade tensions and tariffs, which could erode their market share abroad and increase credit risks for lenders due to lower earnings growth.
• As with PE, firms that depend on intermediate inputs from global supply chains may encounter disruptions, forcing them to seek alternative suppliers or absorb higher production costs. If these increased costs cannot be passed on to consumers, such companies are likely to experience reduced earnings growth, further elevating credit risk.
• And companies in industries heavily reliant on immigrant labor—such as construction, hospitality, or healthcare may face increased workforce challenges due to more restrictive immigration policies. These companies might have to raise wages, which could erode profit margins and increase credit risk, particularly if they are unable to offset higher costs through price adjustments or operational efficiencies.

Private debt outside the US

If the net effect of tariffs proves negative, European economies may face additional headwinds to GDP growth which in turn would place greater strain on European borrowers, heightening credit risks.

Real estate

Capital markets

Existing capital markets trends are likely to continue.

Balance sheets designed for lower interest rates have to be restructured, likely without the hoped-for bailout from dropping rates (as experienced post-GFC). This provides ongoing opportunity to invest in rescues and distress buys and challenges for those needing to restructure.

In the near term, sustained higher interest rates reinforce the re-pricing that has occurred, and where prices settle is a function of interest rates. Ultimately, real estate must reprice to outperform fixed income. This implies near term losses, more so for owners with inflated carrying values.

Transaction volume has remained depressed due to interest rate uncertainty plus the prevalence of carrying values above trading values and may stay low for some time. While there is sufficient volume for price discovery, it happens slower amid lower volume so this will remain a challenge if rates move substantially or don’t settle. A looser regulatory environment, particularly with respect to lending or tax policies that boosts real estate investment would lift volume. Sustained higher rates, tighter bank regulatory guidance and the passage of time each can pressure lenders to resolve their books. This supports trading volume by driving distress investment activity now and lending recovery as it progresses.

A stronger dollar may slow foreign investment into the US, though its higher returns and lower risk have been a major draw that may continue especially for investors focused on longer term deployment. It also supports US deployment abroad.

Fundamentals

At the property level, major shifts and trends in space use are likely to continue. Expansionary fiscal policy and economic growth generally boost demand and vice versa, with many nuances by property type and location.

Inflation is often beneficial to real estate pricing and can lift incomes to the extent it can be passed through to tenants, which is most likely with equilibrium or supply shortages. Expense pass throughs are harder in the short term for more operationally intensive assets such as hospitality or senior care.

Reduced supply facilitates higher rents and property values. Higher costs of borrowing, materials (many of which are imported), labor etc. plus lower availability of construction labor (which depends heavily on immigrants) all serve to reduce new development.

The US economy is increasingly divided among haves and have nots, which impacts spending patterns; many aspects of the Trump administration policies reinforce this split, especially the proposed tax policy. Properties focused on demand from more affluent consumers, (most obviously in retail and hospitality sectors), will have better outcomes. Also, some sectors are more susceptible to a pullback in consumer spending, which is possible as inflation reduces real disposable income growth (retail, and to a lesser extent industrial and hospitality).

Higher interest rates will keep the pace of home sales muted. This boosts demand for rental housing, but reduces demand for industrial space, which is used to handle, store and distribute home improvement products, home goods and appliances. Self-storage is highly correlated to home sales, and therefore likely to see weaker demand. 

Industrial 

• Benefits from onshoring will take time to develop properly as supply chains reconfigure. It supports production hubs—markets with more land, energy, and water. Any rollback of the Inflation Reduction Act would limit growth in these hubs (and related demand for industrial space).
• Tariffs and a trade war would reduce trade volumes and economic growth. Warehouse demand is shifting toward markets supporting Mexican trade and may expand on the east coast if European trade grows. Much of the goods trade with China has already shifted to other Asian markets, which is likely to offset negative impact on western port markets from anti-China policy.
• Industrial demand is correlated to GDP growth and more recently, retail spending.

Office

• Trump tax policies could be modestly beneficial for the office market, with a lower corporate tax rate potentially boosting leasing activity.
• Trump could enforce a broader return to office mandate for Federal employees.
• A weaker economy might temporarily increase worker willingness to return to the office, however labor trends strongly favor hybrid work.

Residential

• Overall, there continues to be a shortage and affordability problem which is likely to sustain occupancy and support gradual rate growth over time. It is likely to remain interesting with the ongoing need for careful market and asset selection.
• Lower immigration and potential deportation reduce demand, especially in certain markets.
• There is risk of legislative backlash to the Trump policies plus ongoing housing frustration leading to more regulation (this did happen in the last Trump administration, most notably in New York, with lessons learned that hopefully will be applied elsewhere). Housing is regulated at the state and city level.
• Insurance costs and availability limits are rising with the increased number of costly events, and this will affect residential costs particularly in Florida, Texas and California. They may affect migration patterns (now strongly favoring Florida and Texas).

Retail

• Broadly, tariffs will lower consumption and weigh on sentiment, reinforcing pivot to value. Non-essential stores (e.g., home improvement, home goods, appliances, etc.) are likely to see the worst impact.
• Retailer health may be challenged by shrinking margins due to inability to pass along full extent of tariffs and pullback in spending related to higher prices.

Hospitality 

• This sector is highly cyclical, with demand affected by GDP growth.
• Impact varies by segment; corporate travel and upscale leisure could see short-term boost from favorable tax policies, while economy segment likely to continue
  to struggle.
• Stronger dollar shifts leisure travel away from the US.
• Possible labor shortage from reduced immigration.

Healthcare

• Changes made to Affordable Care Act (ACA) and Medicaid reimbursements could impact demand for medical office space, especially if ACA enrollment declines significantly.
• Immigrants represent a critical share of the healthcare workforce in US; any restrictions on immigration could impact cost and availability of services, and for providers, could make operating costs even more onerous.

Data centers

• Trump likely to be more friendly toward AI, reducing regulation and oversight, boosting demand.
• Trump policies likely to expand power availability, which has been a supply constraint.

Student Housing 

• Foreign student population may decline due to changing immigration policy, visa and travel restrictions, and a weaker US dollar.

Real estate outside of the US

• Inflation is likely to rise globally in the wake of higher tariffs and other steps toward deglobalization. This could limit central bank rate cuts and keep upward pressure on interest rates with similar impact to real estate as described above for US.
• Trade policy and deglobalization could slow global economic growth, which would mean less demand for real estate and more modest rent growth projections.
• There could be increased demand for industrial and logistics properties in regions that attract US businesses looking
  to diversify their supply chains away from China. These markets would likely also experience broader overall growth; however, they tend to be less developed overall and are less likely targets for institutional real estate investors.
• Continued strength in the US dollar will support US tourism abroad, supporting economies in Europe and Asia broadly, and hospitality sectors specifically.

Infrastructure

Tariffs

The Trump Administration has pledged to place tariffs on Chinese made goods which will likely result in higher US domestic inflation, benefitting Infrastructure assets given regulatory and contractual protections as well as the relative inelasticity of demand for them.

Benefiting sectors and segments

• Integrated electric utilities, local distribution companies (gas utilities) and water utilities.
• Toll roads.

Suffering sectors and segments

• Tariffs are likely to impact supply chains across industries. Solar is likely to be the most affected Infrastructure sector given many of the photovoltaic panels have historically been manufactured in China. While the Biden Administration placed bans on solar panel production originating in China, some of the final production was moved to Southeast Asian countries for import into the US. It is likely that Trump 2.0 tariffs will impact these imports notwithstanding their final origin is outside of China.

Inflation Reduction Act

The Trump Administration has pledged to adjust the IRA as well as shift away from green energy, which we expect will result in:

Benefiting sectors and segments

• An increase in support for conventional natural gas-fired thermal power generation.
• An increase in support of traditional energy production including a ramp-up of drilling and/or mining on federal land for oil & gas and government support for new oil & gas transportation pipelines.

Suffering sectors and segments

• A reduction in the amount of government loans supporting green energy projects and hence a dramatically reduced Department of Energy Loan Programs office. This would increase the amount of market sourced debt or equity capital for new green energy projects.
• Federal government support removed for offshore wind potentially resulting in the elimination of further federal land leases for development of offshore wind and the cancellation of current leases.

Uncertain sectors and segments

• Federal government support potentially removed for carbon capture which could result in removal of the 45Q tax credit that currently supports the capture and storage of carbon. We expect that any change in this area will be forward looking rather than resulting in cancellation of credits currently being enjoyed by various projects. We also note that carbon capture has historically been used to support enhanced oil recovery, benefitting oil and gas producers and hence it could continue to garner support from the incoming Administration for this reason.

Immigration 

Reduced access to skilled and unskilled labor could delay greenfield Infrastructure project construction timelines and increase costs.

Government spending

Trump 2.0 has pledged to reduce government spending and inefficiencies, including a new Department of Government Efficiency (DOGE).

Benefiting sectors and segments

• Lower federal transfer payments to states could result in fewer proceeds available to construct or refurbish government-owned assets, potentially driving a ramp-
  up of public-private partnerships and new investment opportunities in US water and transportation infrastructure.
• Opportunities may arise from sales or leasebacks of federally owned assets in the US, including real estate for siting new Infrastructure projects and concession-based sales of major federally owned Infrastructure utilities such as the Tennessee Valley Authority and Bonneville Power Administration.
• A materially positive change in government efficiency levels may lead to improved permitting efficiency and reduced regulatory hurdles for approving greenfield projects.
• This could spur an Infrastructure investment boom, creating significant opportunities for institutional investors.

Infrastructure outside of the US

Infrastructure investments outside the US are likely to be shaped by global shifts in energy policy and trade.