How will Trump 2.0 impact private markets?
Since Tuesday, I’ve received questions from clients, investors, and teammates on what Trump 2.0 means for Caplight and private markets.
I won't dive into my personal views, nor will I try to capture the emotions felt this week by millions of Americans on both sides of the political aisle.
What I do think is helpful is an objective look at policy and data, with a focus on VC assets.
Overall: I'm expecting a tug-of-war of market factors to jostle the private markets throughout Trump v2.
Here's my read of the good & bad factors at play:
The Good:
- Peaceful transition: it seems we'll have a smooth transition of power. It's clear there was an embedded discount in public markets that's been shed as this risk has shrunk, which should translate to private markets. At time of writing Nasdaq is up ~6% and VIX is down ~30% since Nov 4 close.
- Less regulation: a healthy exit environment is key to keeping the VC ecosystem going. Leadership changes at the FTC and SEC should result in more M&A, and maybe even IPOs. Bitcoin is up ~13% since EOD Nov 4. (proxy for de-regulation).
- Low tax environment: lower corporate and personal taxes should increase VC returns. Corporate: many VCs actually care about profitable growth post '21, and private companies should be able to invest more operating income into growth. Personal: more discretionary income should result in more spending, benefiting consumer-facing startups (gaming, hardware, etc).
The bad:
- Inflation: Trump 2.0 policy is highly inflationary. Rates should react and go higher, making the cost of borrowing more expensive. This is a big headwind for high-growth businesses that need access to capital to continue growing.
High inflation and the corresponding rate rise have wreaked havoc on startups over the past ~3 years. Returns on VC are less attractive in high-rate environments. The 10-year treasury yield is currently around 4.5%. Crossing 5% is a bad sign.
- Tariffs: go hand in hand with inflation, but I call this out specifically to highlight that VC appetite for startups that rely on non-US imports may decrease.
- Global conflict: probably the biggest question here. None of this analysis really matters if major global conflicts escalate.
DISCLAIMER: The views expressed herein are my own and do not necessarily reflect the views, opinions, or official positions of Caplight, colleagues, or any affiliated organizations.
