Monday, February 20, 2017

How will the alternative investments domain fare under Trump?

Reduced taxes, a relaxation of regulations, and new trade policies. These were some of Trump’s commitments during the election season. Not surprisingly, Wall Street is excited, and those in the alternative investments sector, apparently even more so.

The list of alternative assets includes private equity, venture capital, hedge funds, and real assets such as oil and gas, gold, precious metals, antiques, and art. And a Trump presidency is set to affect all of these sectors.

Trump’s immigration policy is likely to result in a decreased number of labor workers, which in turn will impact on the operations of manufacturing, automative, food and beverage, and real estate. In truth, even as his campaign puts so much of the blame on immigrants for “stealing the jobs of locals,” immigrants take on a sizeable amount of the undesirable and unstable work for much lower pay.

With this development, costs for labor might go up, leading to higher prices of commodities and properties. It is yet to be seen whether this will be net positive or negative for the investment and securities business: On the one hand, it will be the opposite of the housing bubble that led to mortgage crisis of 2007 to 2019, where the decline in property prices resulted in the devaluation of real estate-based investments. On the other hand, higher prices might also simply turn the market away in favor of countries with better-priced properties.

Moreover, Trump has spoken about plans to reduce corporate taxes and bring back home the $2.5 trillion worth of cash from abroad. In addition, because he is from the world of business, he has been appointing businessmen to government posts, most notably former Goldman Sachs top exec and hedge fund manager Steven Mnuchin. With people from the industry around him, Trump is more likely to respond to the growing concern of fund management professionals towards easing up on current regulations covering asset management. More relaxed regulations will most likely draw more investors and expand the ways they can do business. At the same time, the situation might bring us back to the same problems that we faced before the financial crisis, which legislations such as the Dodd-Frank Act hoped to address.

In summary, nothing is certain for the alternative investments industry under Trump. But alternative asset managers will definitely benefit from consulting with today’s breed of asset servicing firms to boost their operational efficiency and strengthen their organization amid these unpredictable times.