Election Impact on Alternative Investments

With additional content provided by Michael McClain, AVP, Research.

With Donald Trump’s recent presidential election victory, the landscape for alternative investments may be poised for meaningful changes. While future shifts in policy are far from certain and will likely remain ambiguous well into 2025, we have been actively considering their potential effects and specifically, which alternative investments may be impacted.

• Tax Policies and Corporate Earnings. One of the immediate effects of a Trump presidency is the potential extension of the Tax Cuts and Jobs Act, which is set to expire at the end of 2025. This could lead to lower corporate tax rates over the long-term, which may enhance corporate profitability and possibly support stock prices. For alternative investments, particularly private equity and venture capital, this environment could also encourage more corporate transactions and improve the initial public offering (“IPO”) landscape as firms seek to capitalize on favorable market conditions. Today, the IPO market remains frozen, as growth in private capital fundraising has allowed firms to stay private for longer.
• Trade Policy and Inflation. Trump’s approach to trade, including potential tariffs on imports, could lead to inflationary pressures if retail prices meaningfully reflect the rise in wholesale prices. This environment may make commodities, managed futures, and real assets more attractive if prices rise. In his prior term, Trump’s use of tariffs was specific to select markets (steel and aluminum), which may make a more active fund implementation approach appropriate to take advantage of certain areas of the market.
• Deregulation. The Trump administration is expected to prioritize deregulation across various sectors, including energy, finance, and technology. This could create new opportunities for alternative investments, especially in industries that have been heavily regulated. For instance, deregulation in the energy sector may lead to increased investments in fossil fuels, while financial deregulation may lead to an increase in bank lending and/or a surge in investment banking-related fees, assuming a pickup in corporate deal activity.
• Market Volatility and Stock Dispersion. The uncertainty surrounding Trump’s policies may lead to increased market volatility and stock dispersion. As market participants digest changes and subsequently begin to distinguish between firms positively and negatively impacted, strong fundamental long/short and equity market-neutral strategies, stock pickers may become increasingly attractive.
• Infrastructure. Trump’s impact on infrastructure may be one of the more complex areas to digest. His preference for traditional energy sources and opposition to the Inflation Reduction Act (“IRA”) could shift how capital is allocated in an industry that has high-level bipartisan support, albeit contentious end solutions. The secular tailwinds supporting the digitalization of existing infrastructure should continue to drive the space, however, may still be politicized and potentially delayed. It’s also likely that the renewable energy industry may be sidelined for oil and gas pipelines and refineries, which could produce meaningful differences in sector and regional focus among strategies.

Summary

Donald Trump’s election will have noteworthy implications for alternative investments, however, with policy changes still uncertain, it remains too early to make any significant changes to your alternative investment allocations. Undoubtedly, areas such as tax reforms, deregulation, trade policies, and infrastructure spending are shifting and as is often the case, the long-term outlook for interest rates remains fluid. While rate cuts are still expected well into 2025, strong growth, lower taxes, and potentially new inflationary pressures may curb those cuts. Investors should remain attentive and consider adapting their strategies to capitalize on emerging opportunities while managing the inherent risks of a changing political and economic environment. As always, staying informed and flexible will be key to navigating this evolving landscape.