2016 Election Results And The Implications For Private Equity

Election Overview

WASHINGTON, D.C – President-Elect Donald Trump sealed his upset over Secretary Hillary Clinton by capturing large swaths of the Midwestern states and securing both Florida and North Carolina in the South. While almost every poll predicted a Hillary Clinton victory – FiveThirtyEight’s final models gave Secretary Clinton a 71 percent chance of winning the election on November 8 – President-Elect Trump won by 74 electoral votes, although he trailed in the popular vote and did not win a majority of total votes.

Presidential Map 2
Source: The New York Times

 

Election night also featured better-than-expected performances by Republicans in both the House and the Senate. As of November 29th, the Republicans are expected to lose only 6 seats in the House, currently maintaining a majority of 239 seats to the Democrats’ 194.* In the Senate, the Democrats failed to win the majority even though they were heavily favored to do so. As it stands, the Republicans maintain a slim majority of 51 seats to the Democrats’ 48.**

House Senate Map
Source: The New York Times

Implications For Private Equity

The implications of these elections for private equity is significant. Tax reform has been identified as a major objective for Congressional Republicans, and due to Republican control of both chambers of Congress as well as the Presidency, the timeline for tax reform may be accelerated.

With the Republican Party’s sweeping victory, we also expect the regulatory environment to be more friendly to private equity in 2017. AIC will focus on three main regulatory issues:

  1. Keeping private equity investment advisers from being wrongly classified as broker-dealers.
  2. Maintaining incentive-based compensation for the private equity industry.
  3. Furthering the Investment Advisers Modernization Act, which passed the House in September of this year.

However, the legislative environment could also prove more uncertain in the 115th Congress. Take, for example, the issue of interest deductibility. The House Republican blueprint, endorsed by Speaker Ryan and Ways and Means Chairman Brady, calls for 100% expensing and full elimination of business interest expense deductions. Early versions of Trump’s tax plan also indicated his willingness to embrace reform that limits interest deductibility, but offers a choice to businesses.

In response, AIC is preparing for congressional attempts to change the capital gains tax treatment of carried interest, and calls to limit, or even eliminate, interest deductibility.

About the American Investment Council

The American Investment Council (AIC) is an advocacy and resource organization established to develop and provide information about the private investment industry and its contributions to the long-term growth of the U.S. economy and retirement security of American workers. Member firms of the AIC consist of the country’s leading private equity and growth capital firms united by their successful partnerships with limited partners and American businesses. More information about the AIC can be found at www.investmentcouncil.org.

*There are still two more House elections to finish in Louisiana, which is hosting a runoff between the top two candidates on December 10th.
**There is also still one more Senate election to finish in Louisiana, which hosts a runoff between the top two candidates on December 10th.

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