As the election unfolds, the immediate effects on private market operations and deal making are anticipated to be minimal, although a contested outcome could lead to a temporary slowdown in activity.
In a market note, Drew Schardt, vice chairman, global head of investment strategy and co-head of direct equity at Hamilton Lane, said private market investors are likely to maintain a business-as-usual approach, especially given the improving transaction environment prior to the election.
“Investing in private assets will continue to be attractive, especially given the likelihood of persistent public market volatility and the potential for strong relative outperformance within the private markets,” Schardt said.
“That said, depending on which candidate wins the presidency and congressional control dynamics, there will be various tactical overweight/underweight opportunities and likely a wider dispersion of returns. As such, the specific investment area, geography or theme will play a more impactful role on longer-term results across strategies.”
Turning to what he perceives as the “biggest challenge with this election”, Schardt explained that investors thrive on certainty, and this election poses significant challenges in that regard, with the possibility of delayed results due to legal disputes.
This ongoing uncertainty may deter immediate deal making, he warned but added that a favourable interest rate and inflation outlook has played in the asset class’ favour.
“Over the last 6–9 months, we’ve been given better clarity around interest rates and monetary policy globally, and deal activity has started to increase dramatically because of the favourable outlook on rate policy,” he said.
“Although anticipation around this election has put some deal activity on hold, if it weren’t for that, you would continue to see deal making surge, reflective of a good North American growth outlook.”
In terms of policy and its impact on the asset class, Schardt said both candidates have proposed inflationary measures emphasising “America first” initiatives, albeit with different approaches.
“Trump is clearly more extreme in this view. Ten per cent universal tariffs [signalling potentially moving to 20 per cent] and 60 per cent on China [potential to strip it of its most-favoured nation status],” he said.
“Harris has a softer/targeted view, but likely to still maintain existing tariffs on imported goods and create subsidies for American manufacturing.”
As such, Schardt questioned whether the growth outlook can outweigh the rising costs of goods and services from those policies.
“Our view is that it will be something policymakers will have to keep an eye on – if inflation starts to peak, it will be more on the modest side, which means policymakers, the Fed and others can stay the course on stable, higher for longer rates, with a more gradual reduction,” he said.
Private markets to continue to grow
Speaking to InvestorDaily this week, Andrew McVeigh, managing partner at Remara, said he expects private markets to grow naturally regardless of who wins the US election.
McVeigh said “economic forces” are driving the popularity and success of private markets – namely that efficiencies in private markets are outweighing those in public markets.
“I can’t see whoever wins having any impact on growth in the private market sector,” McVeigh said.
While volatility remains unpredictable, McVeigh said he anticipates some upcoming fluctuations but noted that, from a private asset perspective, this could be beneficial.
“I think private assets will potentially benefit from some of that volatility because one of the major mainstays of private assets is that there’s considerably less volatility," he said.
“The more volatility in markets, the more it pushes the case for private markets.”
In the long term, McVeigh warned that Donald Trump’s pro-business agenda could lead to prolonged higher interest rates, potentially re-establishing inflationary pressures and exerting pressure on areas of private markets, including private credit.
