DealLawyers.com Blog

The private equity industry poured money into the campaign coffers of Donald Trump and other Republican candidates during the last election cycle, but recent events may have them wondering whether they’ll get the policies they paid for.  For example, a recent PitchBook article notes that the President’s fondness for tariffs could throw a monkey-wrench into PE funds’ ability to ramp up exits from investment positions that have been held for quite a long time. This excerpt highlights the auto industry as a case in point:

PE firms have historically held their investments for three to five years before exiting, but the average hold time has crept up in recent years. In some sectors threatened by tariffs, a significant chunk of PE investments are nearing the end of the standard holding period.

In the auto industry, for example, PE firms are sitting on 279 companies they have held for at least five years—that’s about 44% of all PE investments in this space, according to PitchBook data. The garment, electronics, food products and beverage sectors see a parallel trend: More than half of PE-backed companies have been held for five years or longer.

If additional tariffs eventually kick in, the exit timeline for some of these investments could be stretched even further.

Of course, tariffs aren’t likely to be the biggest source of angst to the private equity industry. That honor probably goes to the Trump administration’s desire to pull the rug out on the carried interest tax deduction. That’s already got PE & VC trade groups rushing to man the barricades, so we’ll see whether he has better luck with eliminating the deduction than he did during Trump 1.0. 

– John Jenkins