With November rapidly approaching and the 2016 presidential election circus saturating airwaves, all voters, including private debt managers, are beginning to seriously ponder what a post-Barack Obama America will look like.
Of course, envisioning a world without Obama includes having an idea of what policies the next administration might contemplate. When speaking about the candidates, one market source reflected the sentiments of many voters. This person said it was difficult to guess what precise policies each candidate might enact that would affect private debt.
Neither campaign responded to multiple requests for clarification or elaboration on their candidate’s positions.
Donald Trump’s website contains little to address financial regulation in any substance; rather it just addresses all forms of regulation in a general way. He is, however, following Republican orthodoxy by opposing regulations.
Clinton’s site on the other hand contains the equivalent of a dissertation when compared against Trump’s eight bullet points. The paper includes a section on regulation of non-bank financial institutions, often referred to somewhat pejoratively as “shadow banks”.
Not many specifics can be gleaned from the effects of a Clinton administration on private debt managers. One tenet that could feasibly apply to the non-bank lenders is the expansion of a regulatory form created under the Dodd-Frank Act. The form, stated to apply to private equity firms, could affect private debt managers because many private credit funds are structured like private equity funds.
As a result, private credit professionals are largely left to assume traditional party orthodoxy will prevail: more oversight from Team Blue, less so from Team Red.
One market source said Clinton is “more likely to be helpful given a proclivity to continue the Obama administration’s policies” of enacting statutes and regulations that increase federal oversight of the banks. On the whole, the source said it might not matter much though because the nation’s capital is deadlocked over so many issues.
In that vein, private debt managers arguably occupy a position that runs against the belief held by many other financiers: namely, the less government in the markets, the better. The private credit industry will benefit from sustained federal scrutiny on banks and traditional lenders, a cause Clinton will undoubtedly champion.
Private debt funds then face a double-edged sword: pull the Trump lever and they’ll likely continue to see little to no regulation; pull the Clinton lever and they may face stricter statutes for the first time.
On the flip side, less oversight in a Trump administration might bring banks back into mid-market lending. The continuing, if not increasing, bank regulation in a Clinton administration will sustain or accelerate the market forces that made the asset class so attractive in the first place.
Though Trump and Clinton present stark differences in demeanour and temperament, neither candidate presents a clear view on how their policies might affect the private debt industry.
If nothing else, from now until November private credit financiers have a parlour game for the breaks between haggling over term sheets.