Many smart people opined, analyzed and tried to predict exactly what Trump’s policies would be in both intention and effect. Like the man himself the conclusions ranged from “disaster” to “fantastic.”
Like most things, the reality will probably end up being somewhere in between, with some positives and some negatives. Tom Brammer posted an interesting and clever take on Medium in which he compares Trump’s approach to that of a private equity investor.
Essentially, Brammer see Trumps as attempting a leveraged buy-out, in which he’ll load the country with debt, take some actions that will, such as cost cutting, achieve short term profitability and then once its valuation has increased will “flip out” at the end of his term and leave the next president holding the bag.
Read the whole article here:
Trump’s election and the subsequent leadership style fit all the hallmarks of a traditional private equity deal.
Think about; first he appeals to the existing shareholders (citizens) making the case that the business (country) is significantly undervalued because it’s been run so poorly by its current management. Having then “acquired” the country he starts immediately making strident changes unencumbered by any concern for the politics of the remaining management staff.
From this perspective, and if you’ve had prior experience of private equity, it’s relatively trivial to extrapolate how other things will play out:
- He will lead with a razor focus on maximizing short-termgains to ensure there’s maximum uplift in “valuation” before flipping the country to the next owner. What does this mean? Well, if you look at his recent approach to environmental & financial regulation he’s identified that repealing these will give an immediate boost with any downside risks being delayed until well past his ownership.
- Will look to replace expensive, capital intensive items with much cheaper substitutesthat may look and operate the same. In some places this will be successful and a considerable amount of waste will be stripped out. But in others this will lead to an ultimate debasement of the brand.
- Partnerships (trade, geo-political etc.) will be reordered such that those that focus on delivering immediate benefit to the valuation will be prioritisedwhilst those that may present a longer term opportunity will be neglected.
So, if you consider this to be the environment that will exist for the next 4–8 years how do you position for it?
If you’re somebody who genuinely believes in the threat posed by climate change, an unbridled financial sector etc. you’re going to need to do some serious thinking about how you can approach those problems in a constructive, partnership manner.
There’s a need now to work with the industries concerned to truly understand the drivers of the risks posed and how they can be addressed in a manner that unlocks further opportunities. The time of campaigning for all encompassing regulations that force a change in behavior is likely gone for a significant period.
— The Option Specialist