Private Equity Experience

The Second Trump Administration: What it Means for Private Equity

• Emily Sander • Episode 2

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Ed Barton and Rory Liebhart join Emily Sander to discuss the implications of President Trump's election for a second term on the private equity industry. The hosts discuss historic impacts, potential changes in legislation, shifting demographics, and the potential for a US-China conflict.

Key Points:

The show's hosts, Emily Sander, Ed Barton, and Rory Liebhart, reflect on the implications of Trump's re-election and the potential impact on the private equity industry and the broader economy.

They discuss the importance of demographics, cultural shifts, and geopolitical events in shaping the economic landscape.

Topics covered include:

-The 2017 Tax Cuts and Jobs Act, which reduced corporate tax rates, increased standard deductions, and lowered capital gains tax rates, is set to expire in 2025.

- Lower corporate tax rates provide more money for reinvestment or distribution to investors.
Increased standard deductions (for individuals) and lower capital gains tax rates make investing more attractive.

Trump's victory was more sweeping than anticipated, giving him control of both houses of Congress, which could impact the renewal of certain tax provisions.

- Interest rates have decreased, allowing private equity firms to leverage more debt for their investments.

- Baby Boomers are aging out of the workforce, and there may be demographic and cultural shifts that impact the economy and politics.

- Dark Horses (Surprising but Possible Scenarios):

Rory: A Trump administration that fully delivers on its pro-capitalist platform.
Ed: Escalation of conflict between the U.S. and China over Taiwan or North Korea, potentially dragging China into a conflict with the U.S.

Who We Are

If we haven’t met before—Hi! We’re a team of professionals who’ve worked together at multiple companies, seen private equity from all sides, and are here to share what we’ve learned to help you succeed. Ed Barton brings decades of tax and financial strategy experience; Rory Liebhart is a finance and M&A pro with a track record of high-growth exits; and Emily Sander is a former Chief of Staff, multi-time author, podcast host, and founder of Next Level Coaching, helping leaders and organizations accelerate their growth.


Connect with Ed

Connect with Emily

Connect with Rory

Welcome to the Private Equity Experience Podcast. Your backstage pass to the strategies, stories, and secrets that drive value in the PE universe. No filters, no fluff, just straight talk and expert insights to help you navigate the private equity world with confidence. And now your hosts, Ed Barton, Rory Liebhardt, and Emily Sander.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

No, you don't sound like Joe Rogan, but with hair,

emily-sander_2_11-12-2024_160240:

Great. Okay. That's what I was going for. And welcome back to the private equity experience podcast. I am joined by the illustrious wavy red haired Rory Liebhardt and Ed Barton, whose hair has changed color drastically in the last 15 years that I have known this man. It's like,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

lie,

emily-sander_2_11-12-2024_160240:

it's like the president of the United States. Look at that segue. Hey,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

equity,

emily-sander_2_11-12-2024_160240:

Hey,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

equity,

emily-sander_2_11-12-2024_160240:

there we go.

rory-liebhart_2_11-12-2024_160240:

Since we last got together, that's

emily-sander_2_11-12-2024_160240:

Sure has. Leader of the free world changed out. You know,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

you know, it's coming, it's coming.

emily-sander_2_11-12-2024_160240:

yes.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

not changed out yet.

emily-sander_2_11-12-2024_160240:

Okay. So we're in November of 2024. Trump has been elected for a second time as president of the United States. What in the world does this mean for private equity?

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Well, I'll, I'll start with, you know, Trump being elected to non consecutive terms. It's only the second time in us history since Grover Cleveland.

emily-sander_2_11-12-2024_160240:

Nerd alert.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

And. So, you know, that in and of itself, we're living in historic times. So just kind of docket that right up there with FDR, Grover Cleveland, FDR, and Donald Trump so, so anyway, that the biggest, the biggest thing that, uh, the election, you know, I, don't know if anyone had predicted that it was going to be this sweeping, a, an election with both houses of Congress, plus, um, the presidency. I had expected that when we,

rory-liebhart_2_11-12-2024_160240:

didn't by the way it reacted the next

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

no, no, I was pretty happy with that. I was pretty happy

rory-liebhart_2_11-12-2024_160240:

capitalist

emily-sander_2_11-12-2024_160240:

vote.

rory-liebhart_2_11-12-2024_160240:

were happy about that for sure.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

but the, the, the biggest thing, you know, I had anticipated that when we were setting up and kind of doing some of the show planning that we were going to be talking about a divided government and what that, what the impacts for that had on particularly the 2017, uh, tax cuts and jobs act, uh, legislation, which a lot of that expires this coming year.

rory-liebhart_2_11-12-2024_160240:

right.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

And for those folks who don't kind of understand tax, uh, Cuts and Jobs Act. That cut corporate, uh, corporate, uh, income tax rates, cut the, it essentially increased the standard deduction for most, for most folks. It cut capital gains tax rates. So it made it a very business friendly type tax structure, um, very investor friendly tax structure, especially on the, on the real estate side. You had President Trump and kind of control of Congress. He was a real estate investor or real estate. developer is his early career. So a lot of that, those pain points that he had experienced as a real estate developer, he tried to excise from the, from the tax code pun intended, um, in the 2017. And I, and a lot of those expire this coming year. And so it's, it's interesting. It's going to be interesting to see what survives and what doesn't, particularly given how populist, um, the electorate has become and how populist the. The Trump campaign ran,

emily-sander_2_11-12-2024_160240:

Yeah. Okay, so let me try to break down like three things I think I heard. One, you said, The, the corporate tax on businesses. So like how much tax a corporation has to pay. If that goes down, they have more money. Yes.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

they, yeah, they have, they have not only more, they have more money to be able to spend or to dividend out. So it, it goes where before it would go to the government. Now it goes

emily-sander_2_11-12-2024_160240:

Yep.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

reinvestment or it goes back to the investors.

emily-sander_2_11-12-2024_160240:

And then there was a second one you said, which I think was just income tax. Was that just,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

For individuals, setting aside all the rhetoric and other horse crap that goes on with politics, the Tax Cuts and Jobs Act of 2017 was the largest middle class tax cut in history. my lifetime because it increased the standard deduction so that most folks now didn't have to own a house or have property taxes and stuff to be able to get a big deduction on their taxes. So it was great for, for those folks. And it also decreased the, the capital gains tax

emily-sander_2_11-12-2024_160240:

That's the third one.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

it's actually, well, yes, the two, the two are kind of tied

emily-sander_2_11-12-2024_160240:

Okay.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

The two work together on an individual level to make investing more attractive.

emily-sander_2_11-12-2024_160240:

Okay. So break the third one down capital. So when you,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

a capital gains tax side, if you don't make a ton of money, you may get your capital gains taxed at zero. So, I mean, it's, it's really in up to like a maximum of 20 percent versus if, if, uh, Vice president Harris had been elected. She had talked about increasing it back up to kind of the standard, the same rate as your normal income tax would have been 37 to 39 and a half percent. So 39. 6. So, I mean, it was, it's a dramatic improvement for those who are investing. And also what, what that translates into on a private equity side is owners, founders, founding management are going to get a much greater are likely to get a much more favorable tax treatment now than they would have under the Harris administration.

emily-sander_2_11-12-2024_160240:

they have more, if you're a founder, you've got more cashflow cause you're paying less corporate tax,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yep.

emily-sander_2_11-12-2024_160240:

you have a better selling environment.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yep.

emily-sander_2_11-12-2024_160240:

For a variety of reasons. And you is the capital gains. Is that for like both individual investments and others?

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

So capital, capital gains is at the individual level. So it, so company, so if it's a corporation and I'm going to get a little wonky, but if it's a corporation, you don't get capital gains tax treatment. You just pay income tax. all the same, all the incomes the same, but for individuals and most of these, most founder led companies are Pass Serenities or LLCs or partnerships or S corporations, you get capital gains at the individual level and it really helps you out. I mean, if you were selling your business and you were gonna make$10 million on the sale of your business, your tax now has has gone from what was likely to be$4 million of tax down to. million of tax, which means you get more money in your pocket. On the other side of this, on the, on a private equity side of this, the private equity investors are in a position where interest rates have come down. They've got lower. So normally private equity investors invest as what they use, what's called a blocker C I'm not going to get into deep, dark, Thank blocker seed discussions, but just assume for a moment blocker C's are taxed at the corporate tax rate. So now had, they were looking at potentially seeing the increase of their taxes go up. Go back up to 26, 28, 30%. Now it's going to stay likely down at 20. So it makes that investment more valuable to them because there's more money retained in the business. So as a result, I would expect to see the private equity environment start to, we'd start to see increased. deal activity. We'll start to see increased prices, especially as interest rates are coming down. We'll see increased prices again. And with the likelihood of the Tax Cuts and Jobs Act being extended at least another four to six years under a Republican kind of sweep of the election, I'd expect that Perceptive perception of stability is going to allow more deal flow. And so this is actually going to be, I think we're going to be entering into an interesting high deal flow time for private equity over the next couple.

rory-liebhart_2_11-12-2024_160240:

lot of, um, let's say pent up, know, um, deal activity on the sidelines. So much opportunity that people were waiting around to say, okay, when is the environment going to be right to transact? And, you know, some people were maybe thinking and things might go the other way. Um, politically, so they tried to get deals done a

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

I'll run it.

rory-liebhart_2_11-12-2024_160240:

ahead of time. I mean, I'm reading on the headlines about, know, all sorts of, um, you know, really wealthy executives selling tons of shares of their company because, you know, they weren't sure exactly what was going to happen afterwards. Now, you know, I think there's more certainty and I think with certainty is when markets respond and, and, um, you know, activity can pick up with, as you said, that key, that key element of stability is there. And, uh, you know, like you said, with a interest rate environment, you know, I think what was last cut 25 basis points again, um, you know, that'll continue I, you know, hard, hard to see it getting as frothy as it was in say, 2020 through 2022 or 2021 through 2022. But, know, certainly there's a lot of opportunity to pick up from where it is today. And we've been talking about previously, uh, know, a lot of these investments in these PE funds kind of long in the tooth, you know, something needs to happen and this might've been the catalyst to start. Start the wheels turning, you know, um, going to Q1.

emily-sander_2_11-12-2024_160240:

So all of these policy investments are to try to make an environment where, where deal flow can go up.

rory-liebhart_2_11-12-2024_160240:

Yeah.

emily-sander_2_11-12-2024_160240:

imagining it's kind of like they're, they're betting on it going up a certain amount. And it, and that feeding the economy and making the economy flourish. And if it doesn't, there's like the, the risk or the downside is

rory-liebhart_2_11-12-2024_160240:

think,

emily-sander_2_11-12-2024_160240:

stimulate the economy enough. And then long term bad things start to happen.

rory-liebhart_2_11-12-2024_160240:

yeah, this is very much an overgeneralization, but, you know, with, you know, the Republican political party, you know, the, the platforms about removing friction from commerce in so many ways, um, at least domestically, so that things can freely transact. Whereas, you know, um, it, it, I think a lot of people view, you know, the democratic platform being one of gridlock in some ways. And so, you know, um, you know, when, when regulations get removed, there's deregulation, there's, you know, um, less, less impediment to commerce. know, people start to get really revved up and start to, Start to move and markets tend to respond now. I mean, I think you can an argument multiple ways on that, but you know, that's, that's definitely what we're seeing in this first week following that

emily-sander_2_11-12-2024_160240:

And are you, did you draw something

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

did. So I'm going to geek out for a minute.

emily-sander_2_11-12-2024_160240:

great?

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

is like a little bell curve.

emily-sander_2_11-12-2024_160240:

Oh,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

but what I want to talk about when you,

rory-liebhart_2_11-12-2024_160240:

it.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

What, when you asked your question, Emily, it was the, a concept called the Laffer curve, which looks like this, which essentially says at a certain point, there's a decreased, a decrease in income tax will cause an increase in income tax. Tax revenue. So there's an optimal point because folks at some point, like if you tax a hundred percent, people go, screw it, I'm not going to work and they don't work. If you tack a zero percent, you're going to get no, no revenue. And so there's this concept called the Laffer curve, which some folks who are less economically inclined kind of dismiss, but there's a truth to this, which is there's an optimal tax rate to maximize income. And the argument that you were making is yes, the policy, the tax policy decisions that are made are generally done for two reasons. One is to stimulate the economy

emily-sander_2_11-12-2024_160240:

right.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

to find the optimal point on the Laffer curve, where it maximizes government revenue,

rory-liebhart_2_11-12-2024_160240:

up by

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

because.

rory-liebhart_2_11-12-2024_160240:

Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yep. Because you reduce the rate, which then causes additional business activity, which then causes additional revenue and the decrease in the rate, the increase in the revenue more than offsets a decrease in the rate. So that's, that's one piece. And then the other piece for tax purposes is, goes to what Rory was talking about, which is. Tax policy is a secondary application of other regulatory policy. So you can go, I'm going to tax gasoline

rory-liebhart_2_11-12-2024_160240:

hmm.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

reduce the demand on gasoline and utilize the proceeds from that to off the, the, you know, offset carbon emissions, for instance. And so the combination of those two things, Republican. Republican administrations tend to be less of a regular, tend to have less regulation. They tend to use tax policy less as again, historically, I'm not necessarily sure that's going to be the case here, but the historically they've used tax policy less to, to kind of drive regulatory outcomes. And they've tried to optimize that laugher curve and, uh, democratic, uh, Democratic, uh, policymakers have tended to look at the social costs as opposed to the just financial costs and have tended to have a higher regulatory, uh, environment, which tends to be more cost of business.

emily-sander_2_11-12-2024_160240:

I feel like the laugher curve should have a joke attached to it. It needs to be a funny curve. Um, what?

rory-liebhart_2_11-12-2024_160240:

Yeah. Turn, turn that curve upside down.

emily-sander_2_11-12-2024_160240:

Oh, so we're in a pit. Um, so if we think about some of the phases of the private equity experience we've talked about, like the enter, the operate phase and the exit phase.

rory-liebhart_2_11-12-2024_160240:

Mm.

emily-sander_2_11-12-2024_160240:

I mean, if you're a founder in one of those phases, if you're a P E from one of those phases, and now you have this new political environment with different regulations, um, and different. Things that are happening in the market, like how do you do something differently? Do you adjust? Do you accelerate things? Do you slow down? Okay. Oh boy.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

So I'll, I'll start, but I, I got to give Rory a chance to talk, but I told you I was going to launch like an Elon Musk rocket as soon as this

emily-sander_2_11-12-2024_160240:

You're on a roll. Keep going.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

so

rory-liebhart_2_11-12-2024_160240:

I,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

you've got really. Yeah. For, for the most part, kind of ceteris paribus, all things being equal, you businesses are going to generally do better in a business friendly environment. Now there's other social costs and other offsetting costs. So again, it's not like a everything wins. The, it depends is you have private equity investors, you have startups, you have businesses that have focused in some of those key regulatory areas that were invested in deliberately as part of the, you know, inflation reduction act and the green new deal, uh, type legislation and investments were, if that gets cut, those investments, those private equity investments are going to get cut. are going to underperform, those companies are going to underperform. And if you were kind of betting on a, a Harris administration or a second term of a Biden administration, that was your business thesis, or your private equity maybe, maybe in a. Case where you've got to pivot your strategy because some of those tax policies, regulatory policies, and, you know, kind of the environment is not going to be offset.

emily-sander_2_11-12-2024_160240:

So, so as an example, I know it depends, but one scenario might be. If, if a company was kind of on the edge, kind of on the fence and we could sell now, like we could go, you know, do the whole, um, not the rodeo, but kind of like on, on tour with the pitch deck and going out to try to find buyers. But maybe we wait a little bit. Does this now accelerate it where, okay, we do have a window

rory-liebhart_2_11-12-2024_160240:

Yeah.

emily-sander_2_11-12-2024_160240:

where it's tax advantaged. It's, it's conducive to what we're trying to do. Everything's working in our favor. So maybe that tips it over the edge on timing.

rory-liebhart_2_11-12-2024_160240:

Yeah. I could. I mean, again, it does depend, but I mean, certain industries, you know, uh, may have more, may, may have previously had some more question marks around them, you know, always financial services. I think last, last big regulation change that I would remember was back in 2010 Frank act and banking and all that. And that added a heck of a lot of regulation to. services industry. So now, you know, I think having spoken with folks ahead of the election, I think there was concern about financial governance being even more regulated than was today. So therefore, people might have been waiting and seeing what happens now. I think there's a strong view that, you know, At least for the next four years. Plus, you know, that stuff kind of could get kicked down the road. And so, yeah, maybe if you're on the sidelines now, you can exercise some options, so to speak, to see, see if you can go get a deal done when maybe you wouldn't have been able to get the kind of valuation you thought was reflective of the intrinsic value of your business because of this pending. You know, pending potential legislation or regulation, things like that. I mean, that's just one example. mean, think about a mining or, you know, a different kind of, um, that, you know, um, involves, you know, dealing with nature, let's say, you know, like there's, there's some potential, um, Question marks that are no longer there, perhaps because, you know, with a, with a Trump administration coming in, you know, they've made it very clear that, you know, they're all about, you know,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Drill baby drill.

rory-liebhart_2_11-12-2024_160240:

drill, frack, baby, frack, let's go, you know, um, so it really just, it kind of depends on, on. The industry and so forth. You know, if you're a founder, you're kind of like at both ways. Hey, you know, I can maybe liquidate my business. Maybe I'm ready to sell. But then when I do get proceeds, I'm in a more advantaged position with net cash flow due to the potential tax implications from that, that I'd talked about earlier. So it's kind of a double you talk about double whammies. This could possibly be a double positive. In some ways,

emily-sander_2_11-12-2024_160240:

It's kind of interesting because you said like four plus years, but because Trump has been president before, he, he has four years and that's it, right? That's, you cannot, you can't do an FDR.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

you can't run

emily-sander_2_11-12-2024_160240:

Yeah. So he's got, that's interesting, he

rory-liebhart_2_11-12-2024_160240:

Well, I guess, yeah, I guess, yeah, you're right. It is, he's, it is only four more years, but, um,

emily-sander_2_11-12-2024_160240:

one term. I mean, like he has four years,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

the timing though, is interesting in that the. The policy impacts because the last time he was sitting here and basically it was a, it was a seven year, eight year run. And they said, okay, we're going to let basically run this tax cuts and jobs act out for eight years. And then I think everybody anticipated there's, or at least not everybody, but I'm, I'm certain a number of folks anticipated there'll be a change of administration. And at a minimum of eight years, we'll be able to fix this or change it. now have a Trump administration, again, that could pass legislation that could eight years more or 12 years more on the tax side and basically go, these tax provisions don't sunset. Now that doesn't mean that they can't be changed by subsequent legislation, but it would not surprise me if the, if the. Hand of the Trump administration. Um, just like the old one carried through the Biden administration. If this one doesn't carry through the next couple administrations as well.

rory-liebhart_2_11-12-2024_160240:

you know, this is perhaps a cynical view, but you know what I, what I've seemed

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

It's politics. How could he be cynical?

rory-liebhart_2_11-12-2024_160240:

yeah, yeah, I'm like, how did, why did I agree to do a politics podcast on this one? But, uh, but it is relevant. Uh, I would just say this, like, I think action and, um, market movement has a lot to do with perception and sentiment rather than happenstance. So, like, in other words. Stuff we're talking about may be happening. I don't think it's all going to be done in an executive order, January 7th, this year, or whatever inauguration day is, whatever, but, but it's, it's the perception of what the, what the future road looks like for people that are there to make decisions about their business or their, their commerce. And so I think people are maybe more, more inclined to, let's just say, take some risk perhaps, uh, in this environment, then maybe they would have been in a different administration, you know, just. It's just, like I said, it's about what people think and feel, whether it's real or not, and that just, that's always the case with markets, I think.

emily-sander_2_11-12-2024_160240:

How much of that perception is already baked into the market right now?

rory-liebhart_2_11-12-2024_160240:

Now I'd say it is, I mean, a week, a week removed, but certainly, I mean, just how much things pop to the day or two after. And again, the market is very rational for the most part, um, just in terms of supply demand, but, um, but I don't think it was all baked in until after the election, that's for sure. We know that.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

I think the other, the other piece that,

rory-liebhart_2_11-12-2024_160240:

yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

that folks kind of to Rory's point. The stuff we've talked about already is baked in what I don't think is baked in and what I think is, is in the kitchen getting, getting spun up

rory-liebhart_2_11-12-2024_160240:

it's

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

is,

rory-liebhart_2_11-12-2024_160240:

It's, you

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

is what, what are the impacts? What's the, what's the breadth and impacts of potential tariffs

rory-liebhart_2_11-12-2024_160240:

That's

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

how does, how does that, how does that impact supply chains in the U S which then have downstream impacts for manufacturers and retailers and pretty much anybody else in the, in the U S. So you've got the, the impacts of tariffs, which has been a. cornerstone of, of, uh, of president Trump's proposed tax policy and trade policy. And then the second is what impacts will the potential and what's the effectiveness of a potential deportation of.

rory-liebhart_2_11-12-2024_160240:

exactly.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

non, documented slash illegal, depending on which side of the, uh, political aisle you're on, of immigrants and how does that impact the labor, uh, labor position in the U. S., both cost of and supply of labor. And how does that have downstream impacts on both demand and supply for U. S. goods? And again, those, those elements, I don't think we know enough to know how they're baked, how they're baked in the cake. I think the tax pieces that we've talked about and kind of the likelihood of the tax cuts, job tax, stuff like that are going to continue. That's baked in. I think those two elements that I just talked about are not baked in. I think that's something that private equity investors, that founders, that pretty much all of us are going to have to think through as we're kind of looking forward. Um, and then we're going okay, what impacts are these going to have on our businesses or our investments? Yeah.

emily-sander_2_11-12-2024_160240:

Yeah. And I mean, we, we all have been in multinational, uh, corporations and I mean, I remember it was back in like 2010 timeframe where, um, Ireland, so like Dublin had these massive tax advantages. So a lot of people move their headquarters to, to Dublin just to get,

rory-liebhart_2_11-12-2024_160240:

Hmm.

emily-sander_2_11-12-2024_160240:

just to get that, um, yeah. So there's like these, these things where. You, they can swing the whole structure of a company, or at least the tax footprint of a company based on these policies and regulations.

rory-liebhart_2_11-12-2024_160240:

yeah, when you're talking about, you know, 100, 200 percent tariffs on incoming goods in certain sectors, I mean, you know, what sectors are we talking about? Are we talking about, you know, um, microconductors or semiconductors for, you know, Uh, chips and things that power AI, which, you know, versus like food and, you know, soybeans and whatever it may be like, yeah, I find that's where it's probably going to be not as cut and dry as maybe media would make that out to be as far as a position. Like, it just seems to me that we are so dependent on goods coming in and we are so dependent on labor. Um, that's inexpensive. Uh, and. You know, also innovation from folks that, you know, come to the U S from all parts of the world as well. I've, I've often, I've wondered that recently is like, you know, is, is, is any sort of, let's call it protectionist policy going to hurt our ability to innovate and be kind of at the forefront of, of the world in terms of technology and other, you know, other, um, intellectual capital, you know, like, I, I just don't know. That's an interesting,

emily-sander_2_11-12-2024_160240:

well, it's interesting because we've seen a Trump administration before. Granted, it was, it was. Four years ago. But, and so I'm sure people are saying, okay, we've kind of, we, we generally think we know what he's about. And then we have these, these open switches that we've talked about here. So like, what, what should we be looking for? Like, okay, when a decision comes down on this, that will definitely swing things here. What, what types of things should we keep an eye out for?

rory-liebhart_2_11-12-2024_160240:

well, I would say certainly, you know, uh, appointees in certain parts of the cabinet would come to mind for me, you know, I think whether the appointees are. You know, um, let's just say people fit to be in those roles makes a big difference, you know, and that's one thing we'll see right out the gate with, you know, it's not like this stuff has in, in most cases has a lot of pushback from Congress. It's like who, who gets appointed by the president is in those roles, you know? I think that'll have a lot to do with it out the gate.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

the biggest elements that I think people, uh, generally, uh, don't understand well is how much power, and this goes to Rory's point, the, um, The executive branch has to develop regulation. the regulatory environment is largely not Congress. Congress kind of passes these broad bills to say, you know, regulate pollution. And then the, the head of the EPA and his, In this case, it's because it looks like it's Lee Zeldin that's being appointed to the head of the EPA. They develop a, a regulatory framework to be able to meet Congress's intent. Now over the last, and this it's funny because, you know, it's one of those, be careful for what you wish for things over the last, you know, 30 years or so, there was this concept called Chevron deference, which basically said, if the regulatory, if the, that like the EPA said, this is how the regulations supposed to be interpreted. Courts would defer to that. Now the Supreme Court. So they, you know, if they said, well, that means that includes carbon, they defer to it, including carbon. If they said it doesn't include carbon, they defer to it, not including carbon. Supreme Court and largely based upon, um, uh, appointees from, uh, Presidents, Bush and Trump overturned Chevron deference last year, which now kind of throws some of those regulatory interpretations back to the courts. And so historically, uh, Trump putting someone like Lee Zeldin and Lee Zeldin could really gut. The, the EPA, for instance, and the regulations now there may be folks who go, no, that wasn't Congress's intent. I'm going to sue to maintain those regulations that you're going to get standing and issues and stuff like that. But it, it's the, the appointees have a lot of power to gut that regulatory environment or frame that regulatory environment to support the administration's policies. And that's, you know, environmental policy, that's trade policy, immigration policy, pretty much everything. Yes. Consumer financing, CFPB,

rory-liebhart_2_11-12-2024_160240:

Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

pretty much anything.

emily-sander_2_11-12-2024_160240:

So it sounds like the, the appointee before. Could they kind of had not free reign, but they, they were where the buck stopped in terms of interpreting the intent of Congress. And now that has switched to the Supreme court

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Others.

emily-sander_2_11-12-2024_160240:

where there's a mechanism by which you can say, no, I don't think that's

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yeah, there's an Administrative Procedures Act that requires hearings and stuff like that. But at the end of the day, there was a lot of latitude, and that latitude has been somewhat removed from the, from the regulators.

emily-sander_2_11-12-2024_160240:

who are, so who are the, you mentioned some of them, but who are the key appointees we should be watching for that affect private equity space most.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Secretary of the Treasury,

emily-sander_2_11-12-2024_160240:

For sure. Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

then you've got your, your, uh, S. E. C. appointees and when, when president flips the There's a lot of bipartisan commissions, so like the SEC, the Federal Reserve, that they get kind of a plus one majority for the, the president's, uh, the president's, uh, uh, appointees. So some of these appointees will flip. Um, National Labor Relations Board is going to be an important one. Um, so NLRB, um, the EPA,

rory-liebhart_2_11-12-2024_160240:

Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Financial Protections Bureau, there's, you know, pretty much, almost like there, there isn't one that isn't. Can it be important? I think, you know, Department of Education, maybe, maybe less so, but Treasury, CFPB, Federal Reserve appointees,

rory-liebhart_2_11-12-2024_160240:

Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

judicial appointees.

rory-liebhart_2_11-12-2024_160240:

And the reason for that is simply because, and you talk about in the context, private equity, private equity is, you know, a lot of people think it's private equity backs, you know, manufacturing and financial services. But the fact is that private equity is a, as we've talked about a key tenant of every industry in every business worldwide. And so presumably, you know, The influence of someone at the top of one of these agencies can impact, you know, the interests of private equity in very direct ways, regardless of industry,

emily-sander_2_11-12-2024_160240:

If you're a managing director of a PE firm, I know this answer depends as well. Like what's your response to Trump being elected?

rory-liebhart_2_11-12-2024_160240:

the lobbying dollars and get somebody staked out in Washington, D. C.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

You're, you're, you're happy that probably your carried interest, your carried interest treatment for your, uh, investment is likely to be maintained. Although again, that's when I go back to the beginning of the podcast and I said, you know, the populist

rory-liebhart_2_11-12-2024_160240:

Let's

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

may over overwhelm some of those elements where, so I'll give the example when, when we talk about the. The private equity fees, the 2 percent that goes over to the private equity firm, kind of this two and 20 concept, the 2 percent gets treated as basically as ordinary income. The 20 percent gets treated as what they call carried interest. And you get capital gains treatment. So on one hand, if I was a, if I was a MD at a, at a private equity firm, I'm like, good, my capital gains. rates stay low my carried interest, you know, I get more, more, it's likely that that's going to continue, but I would not be surprised if as a, you know, a little bit of Robespierre move in the, in the Congress, if they don't go, we're going to,

rory-liebhart_2_11-12-2024_160240:

deep

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

we're going to,

rory-liebhart_2_11-12-2024_160240:

Yes.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yeah, we're going to, we're going to take some of these PE and venture folks, especially the ones that were so supportive of, of, you know, again, some of those were more supportive of Harris than they were of Trump on the, on the, uh, donation side. And we're going to put that carried interest on the table as a way to raise revenue, to offset some of the other tax cuts that we might want to give to other folks. So I, I think it does depend, but that's a big one for if you're a PE, Managing director,

emily-sander_2_11-12-2024_160240:

Yeah,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

hitting your pocketbook. That's a big one

emily-sander_2_11-12-2024_160240:

so wait,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

carried interest gets treated.

emily-sander_2_11-12-2024_160240:

so wait, they would take that away?

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Oh, yeah, and treated as ordinary income.

emily-sander_2_11-12-2024_160240:

Oh,

rory-liebhart_2_11-12-2024_160240:

were talking about. It's the difference between, you know, uh, 20 percent and 30 some odd percent

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yeah, 30, 30, 37 is likely that's the top top rate right now.

emily-sander_2_11-12-2024_160240:

oh my gosh, okay.

rory-liebhart_2_11-12-2024_160240:

Yeah.

emily-sander_2_11-12-2024_160240:

Okay. What else should we be thinking about? New president comes in and anytime a new president comes in, it, you know, their policies will shape the market and environment that PE firms and other companies have to have to

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

The,

emily-sander_2_11-12-2024_160240:

in.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

the other piece, the other piece to keep in mind is it's is it tends to be a longer cycle than, than most people think. So, so President Trump shows up January 20th, the impacts of the, the Administrative Procedures Act, which I talked about, that regulatory environment, they have to do hearings and things like that to make changes. You got executive orders, but those, you know, again, you can do those day one, but they take time to implement. So as a result, you're almost two years in before you really start to see the impacts of what the, of what the, um, administration's going to do, you have a tax bill that passes, um, which can be the following year.

rory-liebhart_2_11-12-2024_160240:

which maybe felt, you know, a couple years later that the new administration claims responsibility for because it

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yeah. They either

rory-liebhart_2_11-12-2024_160240:

right?

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

claim responsibility or benefit. Yep.

rory-liebhart_2_11-12-2024_160240:

or red. That's always the way it goes. Yeah.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yep.

rory-liebhart_2_11-12-2024_160240:

you know, I'm quite interested to see, um, you know, how the geopolitical things, you know, that we've been, you know, finding ourselves involved with over the last few years shake out, you know, certainly Trump is very Very much like I'm going to resolve these things, you know, once and for all, and, um, you know, I think that would be interesting to see how that plays out because defense spending also, you know, something that private equity backs, all these things, you know, it's just like, you know, if the really big rocks to me or domestic economy, you know, including fiscal policy, you know, uh, foreign policy, you know, I think, that's, you know, Um, you know, being, being in the country we are and seeing how that plays out, I think both of those things, you know, should know relatively soon how things are going to start to trend, but the policies around that will take some time to implement.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

think the other, the other part I'm going to your kind of comment about any time a president changes, I think more important than the president changing is take a step back and look at the trend of the electorate over a 12 to 18 year cycle and go, how is, how is the culture changing? How are the. How is the economy shifting? Because the president, the presidential elections, the congressional elections are kind of a reflection and they're not a perfect reflection. It's sometimes a funhouse, but it's a, it's a, it's a reflection of kind of what society is doing. And if we look at, If you look at kind of from forward, the electorate has slowly been shifting, you know, it's shift, it's slowly been shifting to be a little bit more, um, global free trade, open, open borders, open and out, and then you get some snaps back and you know, and so the question like with a Trump, with a, with a Trump election coupled with some of the elections we've seen in Europe is, is this. Are we going from a period that has been like from 1980 to let's call it 2020, you know, a 40 year period of globalization to now a another period similar to the 19, 19, 1890s to the 1940s of national, more of a nationalist, uh, Type drive and that for private equity folks who are looking at long term time horizons, you know, 10 year investment time horizons and trying to pick the trends. It's less about how the president vote is, is, cause that'll change, but it's, is that fundamental? there a fundamental shift in how society is viewing the economy and how society is viewing the role of the federal government and the state governments? And can you pick up on that?

emily-sander_2_11-12-2024_160240:

Yeah.

rory-liebhart_2_11-12-2024_160240:

Mhm.

emily-sander_2_11-12-2024_160240:

I mean, we have baby boomers going out of the, out of the job market and we have, As we talked about before, like potentially new, new people coming in from, from different sources and all those things. So it literally like the, the makeup of the country. is shifting. I mean, it always is. But I mean, I think that the baby boomers and some of these other, other influxes,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

born in the fifties and sixties

emily-sander_2_11-12-2024_160240:

that's huge

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

are now aging out. And that was a, that was a, um, that was a period when folks grew up there where it was, it was, I don't want to say fashionable, that's not fair, but it was, it was expected that you were going to be a little bit resistant to authority. You're going to question authority more. You had, you know, the, the. 68, um, you know, kind of 1968 kind of combination of Vietnam, civil rights movements, all those, those kind of fundamental changes the generations after that. And, and, you know, I've had conversations with numerous folks who are seeing the same thing generations after that, of which, you know, I, I, Just kind of take into that generation X piece. Cause I'm, I'm the old guy. Um, they tend to be more conservative generally. Um, and so, and millennials are more, are a little less conservative, but then the, the new gen Y, gen Z tend to be even more conservative. And so it's, again, I think we may be, I'm not sure what all that means, but it's, but like you said, demographics and baby boomers aging out is, is going to have

emily-sander_2_11-12-2024_160240:

My last question for you would be, what is, what would be a surprise? But definitely possible was like, Ooh, like didn't expect that. That's a dark horse, but okay. Now that's in play.

rory-liebhart_2_11-12-2024_160240:

Again, cynical Rory here, I think surprising, but possible would be that, you know, new administration kind of delivers on its platform that it's been talking about, you know, like, think if you're, I mean, I'm a capitalist, right? Uh, you know, lot of those policies are very pro capitalist. So if those all come to be, we, as capitalists, you know, have the potential to see a lot of benefit. There are associated costs with those things, as I'd said, which is correct. But, you know, like I, I'd be, I think it's possible that, you know, things could play out, uh, as, as stated, but, you know, I'd be surprised if it played out as exactly that, that way.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Yeah, I would agree with that. I think my. but, or surprised, but possible would be Trump administration antagonizes China

rory-liebhart_2_11-12-2024_160240:

Yeah,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

to the point

emily-sander_2_11-12-2024_160240:

Oh,

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

actually makes a move on Taiwan, which impacts the semiconductors and other, and other supply chain issues. Um, or you see the same, something similar with North Korea, um, where again, it drags China into a conflict with the U S China's got a, is, is got an economy that's kind of struggling right now. Um, struggling economies tend to create. some level of instability with the, with the government. And that's something that the Chinese government is not, is not going to be willing to tolerate. Um, so it would not surprise me. I I'd be surprised, but I would not be shocked. And I think it's possible to see a U S China type, um, conflict, whether that's, whether that's hot or, or cold, um, over the next four years.

rory-liebhart_2_11-12-2024_160240:

kind of speaks to what we were talking about earlier about making sure they're, I guess the right people are in the administration surrounding the president. And you know, um, I've heard some names bandied about, uh, about a secretary of state, uh, appointees and things like that. That that's a big one. Um, so yeah, that's a really good one, Ed. I you're spot on. That's yeah. Yeah. That's, uh, yeah.

emily-sander_2_11-12-2024_160240:

All right. So those are the things or some things to look for. And we'll certainly be discussing this again and again, as developments come up and new stories and appointments and different geopolitical events happen. But, uh, we'll call it a wrap for that one, but this we're now in kind of on our way to a second Trump administration, not consecutive, but a second one. And we will see what unfolds. From here. Thanks, Ed. Thanks, Rory.

rory-liebhart_2_11-12-2024_160240:

Thank you.

ed--ejbarton-centerbridgelaw-com-_2_11-12-2024_160240:

Thanks.

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