Well, that was interesting! We have been in the middle of several conversations regarding the effect of the incoming Trump administration on a variety of economic and financial issues. Dilip was a panel speaker at a private equity conference in Dallas in December, which happened to coincide with OPEC’s decision to institute production quotas resulting in a jump in crude oil prices. Other than the oil situation, this being Dallas after all, the topic on everyone’s mind was how private equity would be impacted by the incoming administration’s policies.
The short answer is nobody knew nor were they willing to make any forecasts. Putting aside all the flamboyant rhetoric, it appears that the major areas of focus for the new administration are tax relief, regulatory reform and potentially significant infrastructure spending. That mix would typically suggest some inflationary pressures and rising interest rates, but given that we’re coming out of a period of expansionary central bank policies that didn’t result in any meaningful inflation, we’re somewhat hesitant to make any significant predictions on either side of that trade. The consensus seemed to be that the economy and stock markets will continue to plod along with minor ups and downs – what’s usually called a stock-picker’s market.
That viewpoint happens to coincide well with the way private equity works. At the end of the day, PE is a bottoms-up, hands-on investment strategy. As a manager, if you know how to buy and run a business well, you will make money for your investors. If the asset doesn’t have the characteristics you look for in a deal, you stay away from it. Macro issues do have a part to play, but for the smaller, more-focused managers that we invest with, the value they bring to the table outweighs any broad economic impacts.