privateequity

Private Equity Hopes Remain High for Trump Era

by

March 2, 2017

Some of the world’s largest buyout funds have outlined their hopes for favourable taxation under Trump. Executives believe the industry is going to see bullish behaviour in the coming months and hopes the Trump Administration will soon announce the tax reforms.

 

Trump gave his first speech to Congress on Tuesday. He didn’t reveal a lot of information regarding his plans to reform the tax code, but the Administration has consistently talked about the aim for more relaxed taxation and reducing regulation on the financial sector.

 

Carlyle’s co-chief executive calls for calm

 

David Rubenstein, co-chief executive officer at Carlyle, told in a Bloomberg Television interview, “There’s an atmosphere that private equity is welcome into the financial community, and that regulations and deregulations coming out of Washington and maybe some lower taxes will be favourable”.

 

Rubenstein also called for calm and said expectations shouldn’t be too high. The Administration can’t pass legislation, such as tax reform, without the help of Congress and some of the plans remain controversial. Trump’s border-adjustment tax is among those most hotly debated amongst representatives. The tax has also caused controversy amongst industries, with some expecting it to hurt business.

 

Private equity executives also find that specific tax controversial. Johannes Huth, KKR & Co.’s head of Europe, the Middle East and Africa, told investments in US retailers would be unattractive if the border-adjustment tax were to go through.

 

Awaiting for policy proposals

 

The private equity industry is keeping its focus on identifying any possible policy proposals that might be on the way. Amongst the most waited policies is the proposal to replace interest deductibility with immediate expensing. Rubenstein believes the final policy might be a bit more muted.

 

He said, “I suspect many of these things won’t be 100 percent – there might be some limitations”. Nonetheless, Rubenstein believes new investment opportunities will arise in a variety of sectors during the Trump era. He specifically mentioned the energy, financial services, and healthcare sector.

 

Some of the other policies on the Trump agenda have been the ways in which share of profits from an investment are taxed – an issue that has been debated for a long time, even before the presidential race.

Europe is also shaking up its policies

 

Of course, the US is not the only place going through a shake-up right now. John Snow, the chairman of private equity and debt investor Cerberus Capital Management, mentioned at the SuperReturn International Conference in Berlin that Europe also has a lot of turmoil and change in the horizon. France, Germany and the Netherlands, along with a few other countries, will witness presidential or local elections this year. Snow told the audience, “The underlying driving factors that produced President Trump are at work in Europe”.

 

Private equity investors will need to keep their focus, not just on what happens in the US and the positive financial environment that might be on the horizon, but also on what happens in Europe. Investor mood is hopeful, but it remains to be seen how the policies and the elections turn out to be.

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