As the election unfolds, immediate effects on private market operations and dealmaking are expected to be minimal, although a disputed outcome could result in a temporary slowdown in activity.
In a market note, Drew Schardt, vice president, global head of investment strategy and co-head of direct equities at Hamilton Lane, said private market investors are likely to maintain a business-as-usual approach , especially considering the improvement in the trading environment before. in the election.
“Investing in private assets will continue to be attractive, particularly given the likelihood of continued volatility in public markets and the potential for strong relative outperformance within private markets,” Schardt said.
“That said, depending on who wins the presidency and the dynamics of congressional control, there will be various tactical overweight/underweight opportunities and likely greater dispersion of returns. As such, the specific investment area, geography or theme will play a more impactful role on the long-term results of the strategies.
Addressing what he sees as “the biggest challenge of this election,” Schardt explained that investors thrive on certainty and that this election poses significant challenges in that regard, with the possibility of delayed results due to litigation. legal.
This continued uncertainty could deter immediate deal-making, he warned, but added that a favorable interest rate and inflation outlook worked in the asset class’s favor.
“Over the past 6-9 months, we have gained greater clarity on interest rates and monetary policy globally, and transaction activity has started to increase significantly due to the favorable outlook for rate policy,” he said.
“Even though the anticipation around this election has suspended some transaction activity, if not for that, you would continue to see an increase in transactions, reflecting the good growth outlook in North America.
In terms of policy and its impact on the asset class, Schardt said both candidates have proposed inflationary measures emphasizing “America First” initiatives, albeit with different approaches. .
“Trump is clearly more extreme in this regard. Universal ten percent tariffs [signalling potentially moving to 20 per cent] and 60 percent on China [potential to strip it of its most-favoured nation status]“, he said.
“Harris has a softer, more focused view, but he is likely to maintain existing tariffs on imported goods and create subsidies for U.S. manufacturing.”
Schardt therefore questions whether growth prospects can offset the rising costs of goods and services resulting from these policies.
“Our view is that policymakers will have to watch this: if inflation starts to peak, it will be quite modest, which means that policymakers, the Fed and others can stay the course on a trend stable and higher for many years, with a more gradual reduction,” he said.
Private markets will continue to grow
McVeigh said “economic forces” are behind the popularity and success of private markets – namely that the efficiency of private markets exceeds that of public markets.
“I don’t see whoever wins having any impact on the growth of the private market sector,” McVeigh said.
While volatility remains unpredictable, McVeigh said he anticipates some fluctuations ahead, but noted that from a private asset perspective it could be beneficial.
“I think private assets will potentially benefit from some of that volatility, because one of the main pillars of private assets is that there’s a lot less volatility,” he said.
“The more volatile the markets, the more this speaks in favor of private markets. »
In the long term, McVeigh warned that Donald Trump’s pro-business agenda could lead to a prolonged rise in interest rates, potentially restoring inflationary pressures and putting pressure on some areas of private markets, including private credit.
