November 14, 2024 • 40 mins
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.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:07):
Welcome to the Private EquityExperience Podcast.
Your backstage pass to thestrategies, stories, and secrets
that drive value in the PEuniverse.
No filters, no fluff, juststraight talk and expert
insights to help you navigatethe private equity world with
confidence.
And now your hosts, Ed Barton,Rory Liebhardt, and Emily
(00:29):
Sander.
ed--ejbarton-centerbridgela (00:35):
No, you don't sound like Joe Rogan,
but with hair,
emily-sander_2_11-12-202 (00:38):
Great.
Okay.
That's what I was going for.
And welcome back to the privateequity experience podcast.
I am joined by the illustriouswavy red haired Rory Liebhardt
and Ed Barton, whose hair haschanged color drastically in the
last 15 years that I have knownthis man.
(00:59):
It's like,
ed--ejbarton-centerbridgel (01:00):
lie,
emily-sander_2_11-12-2024_ (01:00):
it's like the president of the United
States.
Look at that segue.
Hey,
ed--ejbarton-centerbrid (01:04):
equity,
emily-sander_2_11-12-2024_ (01:05):
Hey,
ed--ejbarton-centerbrid (01:05):
equity,
emily-sander_2_11-12-2024 (01:07):
there we go.
rory-liebhart_2_11-12-202 (01:08):
Since we last got together, that's
emily-sander_2_11-12-2024_ (01:10):
Sure has.
Leader of the free world changedout.
You know,
ed--ejbarton-centerbridgela (01:15):
you know, it's coming, it's coming.
emily-sander_2_11-12-2024_ (01:18):
yes.
ed--ejbarton-centerbridgela (01:18):
not changed out yet.
emily-sander_2_11-12-2024 (01:20):
Okay.
So we're in November of 2024.
Trump has been elected for asecond time as president of the
United States.
What in the world does this meanfor private equity?
ed--ejbarton-centerbridge (01:35):
Well, I'll, I'll start with, you know,
Trump being elected to nonconsecutive terms.
It's only the second time in ushistory since Grover Cleveland.
emily-sander_2_11-12-2024_ (01:43):
Nerd alert.
ed--ejbarton-centerbridgel (01:44):
And.
So, you know, that in and ofitself, we're living in historic
times.
So just kind of docket thatright up there with FDR, Grover
Cleveland, FDR, and Donald Trumpso, so anyway, that the biggest,
the biggest thing that, uh, theelection, you know, I, don't
(02:06):
know if anyone had predictedthat it was going to be this
sweeping, a, an election withboth houses of Congress, plus,
um, the presidency.
I had expected that when we,
rory-liebhart_2_11-12-20 (02:18):
didn't by the way it reacted the next
ed--ejbarton-centerbridgela (02:20):
no, no, I was pretty happy with
that.
I was pretty happy
rory-liebhart_2_11-1 (02:23):
capitalist
emily-sander_2_11-12-2024 (02:24):
vote.
rory-liebhart_2_11-12-2024 (02:24):
were happy about that for sure.
ed--ejbarton-centerbridgela (02:28):
but the, the, the biggest thing, you
know, I had anticipated thatwhen we were setting up and kind
of doing some of the showplanning that we were going to
be talking about a dividedgovernment and what that, what
the impacts for that had onparticularly the 2017, uh, tax
cuts and jobs act, uh,legislation, which a lot of that
expires this coming year.
rory-liebhart_2_11-12-20 (02:48):
right.
ed--ejbarton-centerbridgela (02:49):
And for those folks who don't kind
of understand tax, uh, Cuts andJobs Act.
That cut corporate, uh,corporate, uh, income tax rates,
cut the, it essentiallyincreased the standard deduction
for most, for most folks.
It cut capital gains tax rates.
So it made it a very businessfriendly type tax structure, um,
(03:12):
very investor friendly taxstructure, especially on the, on
the real estate side.
You had President Trump and kindof control of Congress.
He was a real estate investor orreal estate.
developer is his early career.
So a lot of that, those painpoints that he had experienced
as a real estate developer, hetried to excise from the, from
the tax code pun intended, um,in the 2017.
(03:34):
And I, and a lot of those expirethis coming year.
And so it's, it's interesting.
It's going to be interesting tosee what survives and what
doesn't, particularly given howpopulist, um, the electorate has
become and how populist the.
The Trump campaign ran,
emily-sander_2_11-12-2024 (03:52):
Yeah.
Okay, so let me try to breakdown like three things I think I
heard.
One, you said, The, thecorporate tax on businesses.
So like how much tax acorporation has to pay.
If that goes down, they havemore money.
Yes.
ed--ejbarton-centerbridge (04:08):
they, yeah, they have, they have not
only more, they have more moneyto be able to spend or to
dividend out.
So it, it goes where before itwould go to the government.
Now it goes
emily-sander_2_11-12-2024_ (04:20):
Yep.
ed--ejbarton-cente (04:21):
reinvestment or it goes back to the
investors.
emily-sander_2_11-12-2024_1 (04:23):
And then there was a second one you
said, which I think was justincome tax.
Was that just,
ed--ejbarton-centerbridgela (04:28):
For individuals, setting aside all
the rhetoric and other horsecrap that goes on with politics,
the Tax Cuts and Jobs Act of2017 was the largest middle
class tax cut in history.
my lifetime because it increasedthe standard deduction so that
most folks now didn't have toown a house or have property
(04:49):
taxes and stuff to be able toget a big deduction on their
taxes.
So it was great for, for thosefolks.
And it also decreased the, thecapital gains tax
emily-sander_2_11-12-202 (04:59):
That's the third one.
ed--ejbarton-centerbridgel (05:00):
it's actually, well, yes, the two,
the two are kind of tied
emily-sander_2_11-12-2024 (05:03):
Okay.
ed--ejbarton-centerbridgela (05:04):
The two work together on an
individual level to makeinvesting more attractive.
emily-sander_2_11-12-2024 (05:10):
Okay.
So break the third one downcapital.
So when you,
ed--ejbarton-centerbridgelaw- (05:14):
a capital gains tax side, if you
don't make a ton of money, youmay get your capital gains taxed
at zero.
So, I mean, it's, it's really inup to like a maximum of 20
percent versus if, if, uh, Vicepresident Harris had been
elected.
She had talked about increasingit back up to kind of the
(05:34):
standard, the same rate as yournormal income tax would have
been 37 to 39 and a halfpercent.
So 39.
6.
So, I mean, it was, it's adramatic improvement for those
who are investing.
And also what, what thattranslates into on a private
equity side is owners, founders,founding management are going to
get a much greater are likely toget a much more favorable tax
(05:57):
treatment now than they wouldhave under the Harris
administration.
emily-sander_2_11-12-2024_ (06:00):
they have more, if you're a founder,
you've got more cashflow causeyou're paying less corporate
tax,
ed--ejbarton-centerbridgel (06:06):
Yep.
emily-sander_2_11-12-2024_1 (06:06):
you have a better selling
environment.
ed--ejbarton-centerbridgel (06:08):
Yep.
emily-sander_2_11-12-2024_1 (06:09):
For a variety of reasons.
And you is the capital gains.
Is that for like both individualinvestments and others?
ed--ejbarton-centerbridgelaw (06:17):
So capital, capital gains is at the
individual level.
So it, so company, so if it's acorporation and I'm going to get
a little wonky, but if it's acorporation, you don't get
capital gains tax treatment.
You just pay income tax.
all the same, all the incomesthe same, but for individuals
and most of these, most founderled companies are Pass
(06:39):
Serenities or LLCs orpartnerships or S corporations,
you get capital gains at theindividual level and it really
helps you out.
I mean, if you were selling yourbusiness and you were gonna make
$10 million on the sale of yourbusiness, your tax now has has
gone from what was likely to be$4 million of tax down to.
(07:02):
million of tax, which means youget more money in your pocket.
On the other side of this, onthe, on a private equity side of
this, the private equityinvestors are in a position
where interest rates have comedown.
They've got lower.
So normally private equityinvestors invest as what they
use, what's called a blocker CI'm not going to get into deep,
(07:24):
dark, Thank blocker seeddiscussions, but just assume for
a moment blocker C's are taxedat the corporate tax rate.
So now had, they were looking atpotentially seeing the increase
of their taxes go up.
Go back up to 26, 28, 30%.
Now it's going to stay likelydown at 20.
(07:44):
So it makes that investment morevaluable to them because there's
more money retained in thebusiness.
So as a result, I would expectto see the private equity
environment start to, we'd startto see increased.
deal activity.
We'll start to see increasedprices, especially as interest
rates are coming down.
We'll see increased pricesagain.
And with the likelihood of theTax Cuts and Jobs Act being
(08:07):
extended at least another fourto six years under a Republican
kind of sweep of the election,I'd expect that Perceptive
perception of stability is goingto allow more deal flow.
And so this is actually going tobe, I think we're going to be
entering into an interestinghigh deal flow time for private
equity over the next couple.
rory-liebhart_2_11-12-2024_ (08:28):
lot of, um, let's say pent up, know,
um, deal activity on thesidelines.
So much opportunity that peoplewere waiting around to say,
okay, when is the environmentgoing to be right to transact?
And, you know, some people weremaybe thinking and things might
go the other way.
Um, politically, so they triedto get deals done a
ed--ejbarton-centerbridgel (08:50):
I'll run it.
rory-liebhart_2_11-12-202 (08:50):
ahead of time.
I mean, I'm reading on theheadlines about, know, all sorts
of, um, you know, really wealthyexecutives selling tons of
shares of their company because,you know, they weren't sure
exactly what was going to happenafterwards.
Now, you know, I think there'smore certainty and I think with
certainty is when marketsrespond and, and, um, you know,
activity can pick up with, asyou said, that key, that key
(09:12):
element of stability is there.
And, uh, you know, like yousaid, with a interest rate
environment, you know, I thinkwhat was last cut 25 basis
points again, um, you know,that'll continue I, you know,
hard, hard to see it getting asfrothy as it was in say, 2020
through 2022 or 2021 through2022.
(09:32):
But, know, certainly there's alot of opportunity to pick up
from where it is today.
And we've been talking aboutpreviously, uh, know, a lot of
these investments in these PEfunds kind of long in the tooth,
you know, something needs tohappen and this might've been
the catalyst to start.
Start the wheels turning, youknow, um, going to Q1.
emily-sander_2_11-12-2024_16 (09:51):
So all of these policy investments
are to try to make anenvironment where, where deal
flow can go up.
rory-liebhart_2_11-12-202 (09:58):
Yeah.
emily-sander_2_11-12- (09:58):
imagining it's kind of like they're,
they're betting on it going up acertain amount.
And it, and that feeding theeconomy and making the economy
flourish.
And if it doesn't, there's likethe, the risk or the downside is
rory-liebhart_2_11-12-20 (10:12):
think,
emily-sander_2_11-12- (10:13):
stimulate the economy enough.
And then long term bad thingsstart to happen.
rory-liebhart_2_11-12-202 (10:19):
yeah, this is very much an
overgeneralization, but, youknow, with, you know, the
Republican political party, youknow, the, the platforms about
removing friction from commercein so many ways, um, at least
domestically, so that things canfreely transact.
Whereas, you know, um, it, it, Ithink a lot of people view, you
(10:43):
know, the democratic platformbeing 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 reallyrevved up and start to, Start to
(11:04):
move and markets tend to respondnow.
I mean, I think you can anargument multiple ways on that,
but you know, that's, that'sdefinitely what we're seeing in
this first week following that
emily-sander_2_11-12-2024_1 (11:13):
And are you, did you draw something
ed--ejbarton-centerbridgel (11:15):
did.
So I'm going to geek out for aminute.
emily-sander_2_11-12-202 (11:17):
great?
ed--ejbarton-centerbridgelaw (11:18):
is like a little bell curve.
emily-sander_2_11-12-2024_1 (11:20):
Oh,
ed--ejbarton-centerbridgela (11:21):
but what I want to talk about when
you,
rory-liebhart_2_11-12-2024_ (11:23):
it.
ed--ejbarton-centerbridge (11:24):
What, when you asked your question,
Emily, it was the, a conceptcalled the Laffer curve, which
looks like this, whichessentially says at a certain
point, there's a decreased, adecrease in income tax will
cause an increase in income tax.
Tax revenue.
(11:44):
So there's an optimal pointbecause folks at some point,
like if you tax a hundredpercent, people go, screw it,
I'm not going to work and theydon't work.
If you tack a zero percent,you're going to get no, no
revenue.
And so there's this conceptcalled the Laffer curve, which
some folks who are lesseconomically inclined kind of
dismiss, but there's a truth tothis, which is there's an
(12:07):
optimal tax rate to maximizeincome.
And the argument that you weremaking is yes, the policy, the
tax policy decisions that aremade are generally done for two
reasons.
One is to stimulate the economy
emily-sander_2_11-12-202 (12:19):
right.
ed--ejbarton-centerbridgelaw (12:20):
to find the optimal point on the
Laffer curve, where it maximizesgovernment revenue,
rory-liebhart_2_11-12-2024_1 (12:25):
up by
ed--ejbarton-centerbri (12:26):
because.
rory-liebhart_2_11-12-202 (12:27):
Yeah.
ed--ejbarton-centerbridgel (12:27):
Yep.
Because you reduce the rate,which then causes additional
business activity, which thencauses additional revenue and
the decrease in the rate, theincrease in the revenue more
than offsets a decrease in therate.
So that's, that's one piece.
And then the other piece for taxpurposes is, goes to what Rory
was talking about, which is.
Tax policy is a secondaryapplication of other regulatory
(12:50):
policy.
So you can go, I'm going to taxgasoline
rory-liebhart_2_11-12-2024 (12:53):
hmm.
ed--ejbarton-centerbridg (12:53):
reduce the demand on gasoline and
utilize the proceeds from thatto off the, the, you know,
offset carbon emissions, forinstance.
And so the combination of thosetwo things, Republican.
Republican administrations tendto be less of a regular, tend to
have less regulation.
They tend to use tax policy lessas again, historically, I'm not
(13:18):
necessarily sure that's going tobe the case here, but the
historically they've used taxpolicy less to, to kind of drive
regulatory outcomes.
And they've tried to optimizethat laugher curve and, uh,
democratic, uh, Democratic, uh,policymakers have tended to look
at the social costs as opposedto the just financial costs and
(13:39):
have tended to have a higherregulatory, uh, environment,
which tends to be more cost ofbusiness.
emily-sander_2_11-12-2024_160 (13:44):
I feel like the laugher curve
should have a joke attached toit.
It needs to be a funny curve.
Um, what?
rory-liebhart_2_11-12-202 (13:51):
Yeah.
Turn, turn that curve upsidedown.
emily-sander_2_11-12-2024_1 (13:55):
Oh, so we're in a pit.
Um, so if we think about some ofthe 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_ (14:06):
Mm.
emily-sander_2_11-12-2024_160 (14:06):
I mean, if you're a founder in one
of those phases, if you're a P Efrom one of those phases, and
now you have this new politicalenvironment with different
regulations, um, and different.
Things that are happening in themarket, like how do you do
something differently?
Do you adjust?
Do you accelerate things?
Do you slow down?
Okay.
Oh boy.
ed--ejbarton-centerbridgelaw (14:26):
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 rocketas soon as this
emily-sander_2_11-12-202 (14:32):
You're on a roll.
Keep going.
ed--ejbarton-centerbridgelaw (14:34):
so
rory-liebhart_2_11-12-2024_1 (14:35):
I,
ed--ejbarton-centerbridg (14:35):
you've got really.
Yeah.
For, for the most part, kind ofceteris paribus, all things
being equal, you businesses aregoing to generally do better in
a business friendly environment.
Now there's other social costsand other offsetting costs.
So again, it's not like aeverything wins.
The, it depends is you haveprivate equity investors, you
(14:58):
have startups, you havebusinesses that have focused in
some of those key regulatoryareas that were invested in
deliberately as part of the, youknow, inflation reduction act
and the green new deal, uh, typelegislation and investments
were, if that gets cut, thoseinvestments, those private
equity investments are going toget cut.
are going to underperform, thosecompanies are going to
(15:20):
underperform.
And if you were kind of bettingon a, a Harris administration or
a second term of a Bidenadministration, that was your
business thesis, or your privateequity maybe, maybe in a.
Case where you've got to pivotyour strategy because some of
those tax policies, regulatorypolicies, and, you know, kind of
(15:44):
the environment is not going tobe offset.
emily-sander_2_11-12-2024_1 (15:48):
So, so as an example, I know it
depends, but one scenario mightbe.
If, if a company was kind of onthe edge, kind of on the fence
and we could sell now, like wecould go, you know, do the
whole, um, not the rodeo, butkind of like on, on tour with
the pitch deck and going out totry to find buyers.
But maybe we wait a little bit.
(16:08):
Does this now accelerate itwhere, okay, we do have a window
rory-liebhart_2_11-12-202 (16:12):
Yeah.
emily-sander_2_11-12-2024 (16:12):
where it's tax advantaged.
It's, it's conducive to whatwe're trying to do.
Everything's working in ourfavor.
So maybe that tips it over theedge on timing.
rory-liebhart_2_11-12-202 (16:22):
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 aroundthem, you know, always financial
services.
I think last, last bigregulation change that I would
remember was back in 2010 Frankact and banking and all that.
(16:43):
And that added a heck of a lotof regulation to.
services industry.
So now, you know, I think havingspoken with folks ahead of the
election, I think there wasconcern about financial
governance being even moreregulated than was today.
So therefore, people might havebeen waiting and seeing what
happens now.
I think there's a strong viewthat, you know, At least for the
(17:05):
next four years.
Plus, you know, that stuff kindof could get kicked down the
road.
And so, yeah, maybe if you're onthe sidelines now, you can
exercise some options, so tospeak, to see, see if you can go
get a deal done when maybe youwouldn't have been able to get
the kind of valuation youthought was reflective of the
intrinsic value of your businessbecause of this pending.
(17:25):
You know, pending potentiallegislation 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 marksthat are no longer there,
(17:48):
perhaps because, you know, witha, with a Trump administration
coming in, you know, they'vemade it very clear that, you
know, they're all about, youknow,
ed--ejbarton-centerbridge (17:58):
Drill baby drill.
rory-liebhart_2_11-12-20 (17:59):
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 maybeliquidate 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 dueto the potential tax
(18:21):
implications from that, that I'dtalked about earlier.
So it's kind of a double youtalk about double whammies.
This could possibly be a doublepositive.
In some ways,
emily-sander_2_11-12-2024_ (18:30):
It's kind of interesting because you
said like four plus years, butbecause Trump has been president
before, he, he has four yearsand that's it, right?
That's, you cannot, you can't doan FDR.
ed--ejbarton-centerbridgela (18:41):
you can't run
emily-sander_2_11-12-2024 (18:42):
Yeah.
So he's got, that's interesting,he
rory-liebhart_2_11-12-202 (18:45):
Well, I guess, yeah, I guess, yeah,
you're right.
It is, he's, it is only fourmore years, but, um,
emily-sander_2_11-12-2024_1 (18:50):
one term.
I mean, like he has four years,
ed--ejbarton-centerbridgela (18:52):
the timing though, is interesting in
that the.
The policy impacts because thelast time he was sitting here
and basically it was a, it was aseven year, eight year run.
And they said, okay, we're goingto let basically run this tax
cuts and jobs act out for eightyears.
And then I think everybodyanticipated there's, or at least
(19:14):
not everybody, but I'm, I'mcertain a number of folks
anticipated there'll be a changeof 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 eightyears more or 12 years more on
the tax side and basically go,these tax provisions don't
(19:35):
sunset.
Now that doesn't mean that theycan't be changed by subsequent
legislation, but it would notsurprise me if the, if the.
Hand of the Trumpadministration.
Um, just like the old onecarried through the Biden
administration.
If this one doesn't carrythrough the next couple
administrations as well.
rory-liebhart_2_11-12-2024_ (19:51):
you know, this is perhaps a cynical
view, but you know what I, whatI've seemed
ed--ejbarton-centerbridgel (19:56):
It's politics.
How could he be cynical?
rory-liebhart_2_11-12-202 (19:59):
yeah, yeah, I'm like, how did, why did
I agree to do a politics podcaston 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 withperception and sentiment rather
than happenstance.
So, like, in other words.
Stuff we're talking about may behappening.
(20:19):
I don't think it's all going tobe done in an executive order,
January 7th, this year, orwhatever inauguration day is,
whatever, but, but it's, it'sthe perception of what the, what
the future road looks like forpeople that are there to make
decisions about their businessor their, their commerce.
And so I think people are maybemore, more inclined to, let's
(20:40):
just say, take some riskperhaps, uh, in this
environment, then maybe theywould have been in a different
administration, you know, just.
It's just, like I said, it'sabout 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_1 (20:53):
How much of that perception is
already baked into the marketright now?
rory-liebhart_2_11-12-2024_ (20:58):
Now I'd say it is, I mean, a week, a
week removed, but certainly, Imean, just how much things pop
to the day or two after.
And again, the market is veryrational 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 theelection, that's for sure.
We know that.
ed--ejbarton-centerbridgelaw- (21:16):
I think the other, the other piece
that,
rory-liebhart_2_11-12-202 (21:18):
yeah.
ed--ejbarton-centerbridgel (21:18):
that folks kind of to Rory's point.
The stuff we've talked aboutalready is baked in what I don't
think is baked in and what Ithink is, is in the kitchen
getting, getting spun up
rory-liebhart_2_11-12-2024 (21:32):
it's
ed--ejbarton-centerbridgela (21:33):
is,
rory-liebhart_2_11-12-202 (21:33):
It's, you
ed--ejbarton-centerbridgelaw (21:34):
is what, what are the impacts?
What's the, what's the breadthand impacts of potential tariffs
rory-liebhart_2_11-12-20 (21:39):
That's
ed--ejbarton-centerbridgela (21:39):
how does, how does that, how does
that impact supply chains in theU S which then have downstream
impacts for manufacturers andretailers and pretty much
anybody else in the, in the U S.
So you've got the, the impactsof tariffs, which has been a.
cornerstone of, of, uh, ofpresident Trump's proposed tax
policy and trade policy.
(22:00):
And then the second is whatimpacts will the potential and
what's the effectiveness of apotential deportation of.
rory-liebhart_2_11-12- (22:09):
exactly.
ed--ejbarton-centerbridgel (22:11):
non, documented slash illegal,
depending on which side of the,uh, political aisle you're on,
of immigrants and how does thatimpact the labor, uh, labor
position in the U.
S., both cost of and supply oflabor.
And how does that havedownstream impacts on both
demand and supply for U.
(22:31):
S.
goods?
And again, those, thoseelements, I don't think we know
enough to know how they'rebaked, how they're baked in the
cake.
I think the tax pieces thatwe'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 thatI just talked about are not
baked in.
I think that's something thatprivate equity investors, that
(22:51):
founders, that pretty much allof us are going to have to think
through as we're kind of lookingforward.
Um, and then we're going okay,what impacts are these going to
have on our businesses or ourinvestments?
Yeah.
emily-sander_2_11-12-2024 (23:02):
Yeah.
And I mean, we, we all have beenin multinational, uh,
corporations and I mean, Iremember it was back in like
2010 timeframe where, um,Ireland, so like Dublin had
these massive tax advantages.
So a lot of people move theirheadquarters to, to Dublin just
to get,
rory-liebhart_2_11-12-2024 (23:20):
Hmm.
emily-sander_2_11-12-2024_ (23:20):
just to get that, um, yeah.
So there's like these, thesethings where.
You, they can swing the wholestructure of a company, or at
least the tax footprint of acompany based on these policies
and regulations.
rory-liebhart_2_11-12-202 (23:34):
yeah, when you're talking about, you
know, 100, 200 percent tariffson incoming goods in certain
sectors, I mean, you know, whatsectors 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 likefood and, you know, soybeans and
(23:55):
whatever it may be like, yeah, Ifind that's where it's probably
going to be not as cut and dryas maybe media would make that
out to be as far as a position.
Like, it just seems to me thatwe are so dependent on goods
coming in and we are sodependent on labor.
Um, that's inexpensive.
(24:16):
Uh, and.
You know, also innovation fromfolks that, you know, come to
the U S from all parts of theworld as well.
I've, I've often, I've wonderedthat recently is like, you know,
is, is, is any sort of, let'scall it protectionist policy
going to hurt our ability toinnovate and be kind of at the
forefront of, of the world interms of technology and other,
(24:39):
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 (24:46):
well, it's interesting because we've
seen a Trump administrationbefore.
Granted, it was, it was.
Four years ago.
But, and so I'm sure people aresaying, okay, we've kind of, we,
we generally think we know whathe's about.
And then we have these, theseopen switches that we've talked
about here.
So like, what, what should we belooking for?
Like, okay, when a decisioncomes down on this, that will
(25:09):
definitely swing things here.
What, what types of thingsshould we keep an eye out for?
rory-liebhart_2_11-12-202 (25:13):
well, I would say certainly, you know,
uh, appointees in certain partsof the cabinet would come to
mind for me, you know, I thinkwhether the appointees are.
You know, um, let's just saypeople fit to be in those roles
makes a big difference, youknow, and that's one thing we'll
(25:33):
see right out the gate with, youknow, it's not like this stuff
has in, in most cases has a lotof pushback from Congress.
It's like who, who getsappointed by the president is in
those roles, you know?
I think that'll have a lot to dowith it out the gate.
ed--ejbarton-centerbridgela (25:49):
the biggest elements that I think
people, uh, generally, uh, don'tunderstand well is how much
power, and this goes to Rory'spoint, the, um, The executive
branch has to developregulation.
the regulatory environment islargely not Congress.
(26:11):
Congress kind of passes thesebroad bills to say, you know,
regulate pollution.
And then the, the head of theEPA and his, In this case, it's
because it looks like it's LeeZeldin that's being appointed to
the head of the EPA.
They develop a, a regulatoryframework to be able to meet
Congress's intent.
Now over the last, and this it'sfunny because, you know, it's
(26:32):
one of those, be careful forwhat you wish for things over
the last, you know, 30 years orso, there was this concept
called Chevron deference, whichbasically said, if the
regulatory, if the, that likethe EPA said, this is how the
regulations supposed to beinterpreted.
Courts would defer to that.
Now the Supreme Court.
So they, you know, if they said,well, that means that includes
(26:53):
carbon, they defer to it,including carbon.
If they said it doesn't includecarbon, they defer to it, not
including carbon.
Supreme Court and largely basedupon, um, uh, appointees from,
uh, Presidents, Bush and Trumpoverturned Chevron deference
last year, which now kind ofthrows some of those regulatory
interpretations back to thecourts.
(27:14):
And so historically, uh, Trumpputting someone like Lee Zeldin
and Lee Zeldin could really gut.
The, the EPA, for instance, andthe regulations now there may be
folks who go, no, that wasn'tCongress's intent.
I'm going to sue to maintainthose regulations that you're
going to get standing and issuesand stuff like that.
But it, it's the, the appointeeshave a lot of power to gut that
(27:35):
regulatory environment or framethat regulatory environment to
support the administration'spolicies.
And that's, you know,environmental policy, that's
trade policy, immigrationpolicy, pretty much everything.
Yes.
Consumer financing, CFPB,
rory-liebhart_2_11-12-202 (27:47):
Yeah.
ed--ejbarton-centerbridg (27:48):
pretty much anything.
emily-sander_2_11-12-2024_16 (27:49):
So it sounds like the, the
appointee before.
Could they kind of had not freereign, but they, they were where
the buck stopped in terms ofinterpreting the intent of
Congress.
And now that has switched to theSupreme court
ed--ejbarton-centerbrid (28:03):
Others.
emily-sander_2_11-12-2024 (28:03):
where there's a mechanism by which you
can say, no, I don't thinkthat's
ed--ejbarton-centerbridge (28:07):
Yeah, there's an Administrative
Procedures Act that requireshearings and stuff like that.
But at the end of the day, therewas a lot of latitude, and that
latitude has been somewhatremoved from the, from the
regulators.
emily-sander_2_11-12-2024_1 (28:18):
who are, so who are the, you
mentioned some of them, but whoare the key appointees we should
be watching for that affectprivate equity space most.
ed--ejbarton-centerbr (28:28):
Secretary of the Treasury,
emily-sander_2_11-12-2024_1 (28:30):
For sure.
Yeah.
ed--ejbarton-centerbridgel (28:32):
then you've got your, your, uh, S.
E.
C.
appointees and when, whenpresident flips the There's a
lot of bipartisan commissions,so like the SEC, the Federal
Reserve, that they get kind of aplus one majority for the, the
president's, uh, thepresident's, uh, uh, appointees.
So some of these appointees willflip.
(28:54):
Um, National Labor RelationsBoard is going to be an
important one.
Um, so NLRB, um, the EPA,
rory-liebhart_2_11-12-202 (29:01):
Yeah.
ed--ejbarton-centerbr (29:02):
Financial Protections Bureau, there's, you
know, pretty much, almost likethere, there isn't one that
isn't.
Can it be important?
I think, you know, Department ofEducation, maybe, maybe less so,
but Treasury, CFPB, FederalReserve appointees,
rory-liebhart_2_11-12-202 (29:19):
Yeah.
ed--ejbarton-centerbri (29:19):
judicial appointees.
rory-liebhart_2_11-12-2024_ (29:20):
And the reason for that is simply
because, and you talk about inthe context, private equity,
private equity is, you know, alot of people think it's private
equity backs, you know,manufacturing and financial
services.
But the fact is that privateequity is a, as we've talked
about a key tenant of everyindustry in every business
worldwide.
And so presumably, you know, Theinfluence of someone at the top
(29:43):
of one of these agencies canimpact, you know, the interests
of private equity in very directways, regardless of industry,
emily-sander_2_11-12-2024_16 (29:51):
If you're a managing director of a
PE firm, I know this answerdepends as well.
Like what's your response toTrump being elected?
rory-liebhart_2_11-12-2024_ (29:58):
the lobbying dollars and get
somebody staked out inWashington, D.
C.
ed--ejbarton-centerbrid (30:01):
You're, you're, you're happy that
probably your carried interest,your carried interest treatment
for your, uh, investment islikely to be maintained.
Although again, that's when I goback to the beginning of the
podcast and I said, you know,the populist
rory-liebhart_2_11-12-202 (30:16):
Let's
ed--ejbarton-centerbridgela (30:18):
may over overwhelm some of those
elements where, so I'll give theexample when, when we talk about
the.
The private equity fees, the 2percent that goes over to the
private equity firm, kind ofthis two and 20 concept, the 2
percent gets treated asbasically as ordinary income.
The 20 percent gets treated aswhat they call carried interest.
And you get capital gainstreatment.
(30:39):
So on one hand, if I was a, if Iwas a MD at a, at a private
equity firm, I'm like, good, mycapital gains.
rates stay low my carriedinterest, you know, I get more,
more, it's likely that that'sgoing to continue, but I would
not be surprised if as a, youknow, a little bit of
Robespierre move in the, in theCongress, if they don't go,
(31:02):
we're going to,
rory-liebhart_2_11-12-2024 (31:03):
deep
ed--ejbarton-centerbridge (31:03):
we're going to,
rory-liebhart_2_11-12-2024 (31:04):
Yes.
ed--ejbarton-centerbridge (31:04):
Yeah, we're going to, we're going to
take some of these PE andventure folks, especially the
ones that were so supportive of,of, you know, again, some of
those were more supportive ofHarris than they were of Trump
on the, on the, uh, donationside.
And we're going to put thatcarried interest on the table as
a way to raise revenue, tooffset some of the other tax
(31:25):
cuts that we might want to giveto 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 (31:33):
Yeah,
ed--ejbarton-centerbrid (31:33):
hitting your pocketbook.
That's a big one
emily-sander_2_11-12-2024_16 (31:36):
so wait,
ed--ejbarton-centerbrid (31:36):
carried interest gets treated.
emily-sander_2_11-12-2024_16 (31:38):
so wait, they would take that away?
ed--ejbarton-centerbridgela (31:40):
Oh, yeah, and treated as ordinary
income.
emily-sander_2_11-12-2024_1 (31:42):
Oh,
rory-liebhart_2_11-12-2024 (31:43):
were talking about.
It's the difference between, youknow, uh, 20 percent and 30 some
odd percent
ed--ejbarton-centerbridge (31:49):
Yeah, 30, 30, 37 is likely that's the
top top rate right now.
emily-sander_2_11-12-2024_16 (31:54):
oh my gosh, okay.
rory-liebhart_2_11-12-202 (31:55):
Yeah.
emily-sander_2_11-12-2024 (31:56):
Okay.
What else should we be thinkingabout?
New president comes in andanytime a new president comes
in, it, you know, their policieswill shape the market and
environment that PE firms andother companies have to have to
ed--ejbarton-centerbridgel (32:11):
The,
emily-sander_2_11-12-2024_1 (32:12):
in.
ed--ejbarton-centerbridgela (32:12):
the other piece, the other piece to
keep in mind is it's is it tendsto be a longer cycle than, than
most people think.
So, so President Trump shows upJanuary 20th, the impacts of
the, the AdministrativeProcedures Act, which I talked
about, that regulatoryenvironment, they have to do
hearings and things like that tomake changes.
You got executive orders, butthose, you know, again, you can
(32:33):
do those day one, but they taketime to implement.
So as a result, you're almosttwo years in before you really
start to see the impacts of whatthe, of what the, um,
administration's going to do,you have a tax bill that passes,
um, which can be the followingyear.
rory-liebhart_2_11-12-202 (32:49):
which maybe felt, you know, a couple
years later that the newadministration claims
responsibility for because it
ed--ejbarton-centerbridge (32:56):
Yeah.
They either
rory-liebhart_2_11-12-20 (32:57):
right?
ed--ejbarton-centerbridge (32:57):
claim responsibility or benefit.
Yep.
rory-liebhart_2_11-12-2024_1 (32:59):
or red.
That's always the way it goes.
Yeah.
ed--ejbarton-centerbridgel (33:01):
Yep.
rory-liebhart_2_11-12-2024_ (33:02):
you know, I'm quite interested to
see, um, you know, how thegeopolitical things, you know,
that we've been, you know,finding ourselves involved with
over the last few years shakeout, you know, certainly Trump
is very Very much like I'm goingto resolve these things, you
know, once and for all, and, um,you know, I think that would be
interesting to see how thatplays out because defense
(33:23):
spending also, you know,something that private equity
backs, all these things, youknow, it's just like, you know,
if the really big rocks to me ordomestic economy, you know,
including fiscal policy, youknow, uh, foreign policy, you
know, I think, that's, you know,Um, you know, being, being in
(33:43):
the country we are and seeinghow that plays out, I think both
of those things, you know,should know relatively soon how
things are going to start totrend, but the policies around
that will take some time toimplement.
ed--ejbarton-centerbridge (33:55):
think the other, the other part I'm
going to your kind of commentabout any time a president
changes, I think more importantthan the president changing is
take a step back and look at thetrend of the electorate over a
12 to 18 year cycle and go, howis, how is the culture changing?
How are the.
(34:16):
How is the economy shifting?
Because the president, thepresidential elections, the
congressional elections are kindof a reflection and they're not
a perfect reflection.
It's sometimes a funhouse, butit's a, it's a, it's a
reflection of kind of whatsociety is doing.
And if we look at, If you lookat kind of from forward, the
(34:36):
electorate has slowly beenshifting, you know, it's shift,
it's slowly been shifting to bea 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 Trumpelection coupled with some of
(34:58):
the elections we've seen inEurope is, is this.
Are we going from a period thathas been like from 1980 to let's
call it 2020, you know, a 40year period of globalization to
now a another period similar tothe 19, 19, 1890s to the 1940s
(35:18):
of national, more of anationalist, uh, Type drive and
that for private equity folkswho are looking at long term
time horizons, you know, 10 yearinvestment time horizons and
trying to pick the trends.
It's less about how thepresident vote is, is, cause
that'll change, but it's, isthat fundamental?
there a fundamental shift in howsociety is viewing the economy
(35:39):
and how society is viewing therole of the federal government
and the state governments?
And can you pick up on that?
emily-sander_2_11-12-2024 (35:46):
Yeah.
rory-liebhart_2_11-12-2024 (35:46):
Mhm.
emily-sander_2_11-12-2024_160 (35:47):
I mean, we have baby boomers going
out of the, out of the jobmarket and we have, As we talked
about before, like potentiallynew, new people coming in from,
from different sources and allthose things.
So it literally like the, themakeup of the country.
(36:08):
is shifting.
I mean, it always is.
But I mean, I think that thebaby boomers and some of these
other, other influxes,
ed--ejbarton-centerbridgel (36:14):
born in the fifties and sixties
emily-sander_2_11-12-202 (36:15):
that's huge
ed--ejbarton-centerbridgela (36:17):
are now aging out.
And that was a, that was a, um,that was a period when folks
grew up there where it was, itwas, I don't want to say
fashionable, that's not fair,but it was, it was expected that
you were going to be a littlebit resistant to authority.
You're going to questionauthority more.
You had, you know, the, the.
68, um, you know, kind of 1968kind of combination of Vietnam,
(36:40):
civil rights movements, allthose, those kind of fundamental
changes the generations afterthat.
And, and, you know, I've hadconversations with numerous
folks who are seeing the samething generations after that, of
which, you know, I, I, Just kindof take into that generation X
piece.
Cause I'm, I'm the old guy.
Um, they tend to be moreconservative generally.
(37:01):
Um, and so, and millennials aremore, are a little less
conservative, but then the, thenew gen Y, gen Z tend to be even
more conservative.
And so it's, again, I think wemay be, I'm not sure what all
that means, but it's, but likeyou said, demographics and baby
boomers aging out is, is goingto have
emily-sander_2_11-12-2024_16 (37:17):
My last question for you would be,
what is, what would be asurprise?
But definitely possible waslike, Ooh, like didn't expect
that.
That's a dark horse, but okay.
Now that's in play.
rory-liebhart_2_11-12-20 (37:30):
Again, cynical Rory here, I think
surprising, but possible wouldbe that, you know, new
administration kind of deliverson 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 thosepolicies are very pro
capitalist.
So if those all come to be, we,as capitalists, you know, have
(37:51):
the potential to see a lot ofbenefit.
There are associated costs withthose things, as I'd said, which
is correct.
But, you know, like I, I'd be, Ithink it's possible that, you
know, things could play out, uh,as, as stated, but, you know,
I'd be surprised if it playedout as exactly that, that way.
ed--ejbarton-centerbridge (38:09):
Yeah, I would agree with that.
I think my.
but, or surprised, but possiblewould be Trump administration
antagonizes China
rory-liebhart_2_11-12-202 (38:19):
Yeah,
ed--ejbarton-centerbridgelaw (38:19):
to the point
emily-sander_2_11-12-2024_1 (38:20):
Oh,
ed--ejbarton-centerbri (38:20):
actually makes a move on Taiwan, which
impacts the semiconductors andother, and other supply chain
issues.
Um, or you see the same,something similar with North
Korea, um, where again, it dragsChina into a conflict with the U
S China's got a, is, is got aneconomy that's kind of
struggling right now.
Um, struggling economies tend tocreate.
(38:44):
some level of instability withthe, with the government.
And that's something that theChinese government is not, is
not going to be willing totolerate.
Um, so it would not surprise me.
I I'd be surprised, but I wouldnot be shocked.
And I think it's possible to seea U S China type, um, conflict,
whether that's, whether that'shot or, or cold, um, over the
(39:07):
next four years.
rory-liebhart_2_11-12-2024 (39:08):
kind of speaks to what we were
talking about earlier aboutmaking sure they're, I guess the
right people are in theadministration surrounding the
president.
And you know, um, I've heardsome 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 reallygood one, Ed.
I you're spot on.
(39:28):
That's yeah.
Yeah.
That's, uh, yeah.
emily-sander_2_11-12-2024_1 (39:32):
All right.
So those are the things or somethings to look for.
And we'll certainly bediscussing this again and again,
as developments come up and newstories and appointments and
different geopolitical eventshappen.
But, uh, we'll call it a wrapfor that one, but this we're now
in kind of on our way to asecond Trump administration, not
consecutive, but a second one.
And we will see what unfolds.
(39:54):
From here.
Thanks, Ed.
Thanks, Rory.
rory-liebhart_2_11-12-202 (39:56):
Thank you.
ed--ejbarton-centerbrid (39:57):
Thanks.
If you enjoyed today's episode,please like, share, and
subscribe wherever you get yourpodcasts.
Welcome to the Private EquityExperience Podcast.
Your backstage pass to thestrategies, stories, and secrets
that drive value in the PEuniverse.
No filters, no fluff, juststraight talk and expert
insights to help you navigatethe private equity world with
confidence.
And now your hosts, Ed Barton,Rory Liebhardt, and Emily
(00:29):
Sander.
ed--ejbarton-centerbridgela (00:35):
No, you don't sound like Joe Rogan,
but with hair,
emily-sander_2_11-12-202 (00:38):
Great.
Okay.
That's what I was going for.
And welcome back to the privateequity experience podcast.
I am joined by the illustriouswavy red haired Rory Liebhardt
and Ed Barton, whose hair haschanged color drastically in the
last 15 years that I have knownthis man.
(00:59):
It's like,
ed--ejbarton-centerbridgel (01:00):
lie,
emily-sander_2_11-12-2024_ (01:00):
it's like the president of the United
States.
Look at that segue.
Hey,
ed--ejbarton-centerbrid (01:04):
equity,
emily-sander_2_11-12-2024_ (01:05):
Hey,
ed--ejbarton-centerbrid (01:05):
equity,
emily-sander_2_11-12-2024 (01:07):
there we go.
rory-liebhart_2_11-12-202 (01:08):
Since we last got together, that's
emily-sander_2_11-12-2024_ (01:10):
Sure has.
Leader of the free world changedout.
You know,
ed--ejbarton-centerbridgela (01:15):
you know, it's coming, it's coming.
emily-sander_2_11-12-2024_ (01:18):
yes.
ed--ejbarton-centerbridgela (01:18):
not changed out yet.
emily-sander_2_11-12-2024 (01:20):
Okay.
So we're in November of 2024.
Trump has been elected for asecond time as president of the
United States.
What in the world does this meanfor private equity?
ed--ejbarton-centerbridge (01:35):
Well, I'll, I'll start with, you know,
Trump being elected to nonconsecutive terms.
It's only the second time in ushistory since Grover Cleveland.
emily-sander_2_11-12-2024_ (01:43):
Nerd alert.
ed--ejbarton-centerbridgel (01:44):
And.
So, you know, that in and ofitself, we're living in historic
times.
So just kind of docket thatright up there with FDR, Grover
Cleveland, FDR, and Donald Trumpso, so anyway, that the biggest,
the biggest thing that, uh, theelection, you know, I, don't
(02:06):
know if anyone had predictedthat it was going to be this
sweeping, a, an election withboth houses of Congress, plus,
um, the presidency.
I had expected that when we,
rory-liebhart_2_11-12-20 (02:18):
didn't by the way it reacted the next
ed--ejbarton-centerbridgela (02:20):
no, no, I was pretty happy with
that.
I was pretty happy
rory-liebhart_2_11-1 (02:23):
capitalist
emily-sander_2_11-12-2024 (02:24):
vote.
rory-liebhart_2_11-12-2024 (02:24):
were happy about that for sure.
ed--ejbarton-centerbridgela (02:28):
but the, the, the biggest thing, you
know, I had anticipated thatwhen we were setting up and kind
of doing some of the showplanning that we were going to
be talking about a dividedgovernment and what that, what
the impacts for that had onparticularly the 2017, uh, tax
cuts and jobs act, uh,legislation, which a lot of that
expires this coming year.
rory-liebhart_2_11-12-20 (02:48):
right.
ed--ejbarton-centerbridgela (02:49):
And for those folks who don't kind
of understand tax, uh, Cuts andJobs Act.
That cut corporate, uh,corporate, uh, income tax rates,
cut the, it essentiallyincreased the standard deduction
for most, for most folks.
It cut capital gains tax rates.
So it made it a very businessfriendly type tax structure, um,
(03:12):
very investor friendly taxstructure, especially on the, on
the real estate side.
You had President Trump and kindof control of Congress.
He was a real estate investor orreal estate.
developer is his early career.
So a lot of that, those painpoints that he had experienced
as a real estate developer, hetried to excise from the, from
the tax code pun intended, um,in the 2017.
(03:34):
And I, and a lot of those expirethis coming year.
And so it's, it's interesting.
It's going to be interesting tosee what survives and what
doesn't, particularly given howpopulist, um, the electorate has
become and how populist the.
The Trump campaign ran,
emily-sander_2_11-12-2024 (03:52):
Yeah.
Okay, so let me try to breakdown like three things I think I
heard.
One, you said, The, thecorporate tax on businesses.
So like how much tax acorporation has to pay.
If that goes down, they havemore money.
Yes.
ed--ejbarton-centerbridge (04:08):
they, yeah, they have, they have not
only more, they have more moneyto be able to spend or to
dividend out.
So it, it goes where before itwould go to the government.
Now it goes
emily-sander_2_11-12-2024_ (04:20):
Yep.
ed--ejbarton-cente (04:21):
reinvestment or it goes back to the
investors.
emily-sander_2_11-12-2024_1 (04:23):
And then there was a second one you
said, which I think was justincome tax.
Was that just,
ed--ejbarton-centerbridgela (04:28):
For individuals, setting aside all
the rhetoric and other horsecrap that goes on with politics,
the Tax Cuts and Jobs Act of2017 was the largest middle
class tax cut in history.
my lifetime because it increasedthe standard deduction so that
most folks now didn't have toown a house or have property
(04:49):
taxes and stuff to be able toget a big deduction on their
taxes.
So it was great for, for thosefolks.
And it also decreased the, thecapital gains tax
emily-sander_2_11-12-202 (04:59):
That's the third one.
ed--ejbarton-centerbridgel (05:00):
it's actually, well, yes, the two,
the two are kind of tied
emily-sander_2_11-12-2024 (05:03):
Okay.
ed--ejbarton-centerbridgela (05:04):
The two work together on an
individual level to makeinvesting more attractive.
emily-sander_2_11-12-2024 (05:10):
Okay.
So break the third one downcapital.
So when you,
ed--ejbarton-centerbridgelaw- (05:14):
a capital gains tax side, if you
don't make a ton of money, youmay get your capital gains taxed
at zero.
So, I mean, it's, it's really inup to like a maximum of 20
percent versus if, if, uh, Vicepresident Harris had been
elected.
She had talked about increasingit back up to kind of the
(05:34):
standard, the same rate as yournormal income tax would have
been 37 to 39 and a halfpercent.
So 39.
6.
So, I mean, it was, it's adramatic improvement for those
who are investing.
And also what, what thattranslates into on a private
equity side is owners, founders,founding management are going to
get a much greater are likely toget a much more favorable tax
(05:57):
treatment now than they wouldhave under the Harris
administration.
emily-sander_2_11-12-2024_ (06:00):
they have more, if you're a founder,
you've got more cashflow causeyou're paying less corporate
tax,
ed--ejbarton-centerbridgel (06:06):
Yep.
emily-sander_2_11-12-2024_1 (06:06):
you have a better selling
environment.
ed--ejbarton-centerbridgel (06:08):
Yep.
emily-sander_2_11-12-2024_1 (06:09):
For a variety of reasons.
And you is the capital gains.
Is that for like both individualinvestments and others?
ed--ejbarton-centerbridgelaw (06:17):
So capital, capital gains is at the
individual level.
So it, so company, so if it's acorporation and I'm going to get
a little wonky, but if it's acorporation, you don't get
capital gains tax treatment.
You just pay income tax.
all the same, all the incomesthe same, but for individuals
and most of these, most founderled companies are Pass
(06:39):
Serenities or LLCs orpartnerships or S corporations,
you get capital gains at theindividual level and it really
helps you out.
I mean, if you were selling yourbusiness and you were gonna make
$10 million on the sale of yourbusiness, your tax now has has
gone from what was likely to be$4 million of tax down to.
(07:02):
million of tax, which means youget more money in your pocket.
On the other side of this, onthe, on a private equity side of
this, the private equityinvestors are in a position
where interest rates have comedown.
They've got lower.
So normally private equityinvestors invest as what they
use, what's called a blocker CI'm not going to get into deep,
(07:24):
dark, Thank blocker seeddiscussions, but just assume for
a moment blocker C's are taxedat the corporate tax rate.
So now had, they were looking atpotentially seeing the increase
of their taxes go up.
Go back up to 26, 28, 30%.
Now it's going to stay likelydown at 20.
(07:44):
So it makes that investment morevaluable to them because there's
more money retained in thebusiness.
So as a result, I would expectto see the private equity
environment start to, we'd startto see increased.
deal activity.
We'll start to see increasedprices, especially as interest
rates are coming down.
We'll see increased pricesagain.
And with the likelihood of theTax Cuts and Jobs Act being
(08:07):
extended at least another fourto six years under a Republican
kind of sweep of the election,I'd expect that Perceptive
perception of stability is goingto allow more deal flow.
And so this is actually going tobe, I think we're going to be
entering into an interestinghigh deal flow time for private
equity over the next couple.
rory-liebhart_2_11-12-2024_ (08:28):
lot of, um, let's say pent up, know,
um, deal activity on thesidelines.
So much opportunity that peoplewere waiting around to say,
okay, when is the environmentgoing to be right to transact?
And, you know, some people weremaybe thinking and things might
go the other way.
Um, politically, so they triedto get deals done a
ed--ejbarton-centerbridgel (08:50):
I'll run it.
rory-liebhart_2_11-12-202 (08:50):
ahead of time.
I mean, I'm reading on theheadlines about, know, all sorts
of, um, you know, really wealthyexecutives selling tons of
shares of their company because,you know, they weren't sure
exactly what was going to happenafterwards.
Now, you know, I think there'smore certainty and I think with
certainty is when marketsrespond and, and, um, you know,
activity can pick up with, asyou said, that key, that key
(09:12):
element of stability is there.
And, uh, you know, like yousaid, with a interest rate
environment, you know, I thinkwhat was last cut 25 basis
points again, um, you know,that'll continue I, you know,
hard, hard to see it getting asfrothy as it was in say, 2020
through 2022 or 2021 through2022.
(09:32):
But, know, certainly there's alot of opportunity to pick up
from where it is today.
And we've been talking aboutpreviously, uh, know, a lot of
these investments in these PEfunds kind of long in the tooth,
you know, something needs tohappen and this might've been
the catalyst to start.
Start the wheels turning, youknow, um, going to Q1.
emily-sander_2_11-12-2024_16 (09:51):
So all of these policy investments
are to try to make anenvironment where, where deal
flow can go up.
rory-liebhart_2_11-12-202 (09:58):
Yeah.
emily-sander_2_11-12- (09:58):
imagining it's kind of like they're,
they're betting on it going up acertain amount.
And it, and that feeding theeconomy and making the economy
flourish.
And if it doesn't, there's likethe, the risk or the downside is
rory-liebhart_2_11-12-20 (10:12):
think,
emily-sander_2_11-12- (10:13):
stimulate the economy enough.
And then long term bad thingsstart to happen.
rory-liebhart_2_11-12-202 (10:19):
yeah, this is very much an
overgeneralization, but, youknow, with, you know, the
Republican political party, youknow, the, the platforms about
removing friction from commercein so many ways, um, at least
domestically, so that things canfreely transact.
Whereas, you know, um, it, it, Ithink a lot of people view, you
(10:43):
know, the democratic platformbeing 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 reallyrevved up and start to, Start to
(11:04):
move and markets tend to respondnow.
I mean, I think you can anargument multiple ways on that,
but you know, that's, that'sdefinitely what we're seeing in
this first week following that
emily-sander_2_11-12-2024_1 (11:13):
And are you, did you draw something
ed--ejbarton-centerbridgel (11:15):
did.
So I'm going to geek out for aminute.
emily-sander_2_11-12-202 (11:17):
great?
ed--ejbarton-centerbridgelaw (11:18):
is like a little bell curve.
emily-sander_2_11-12-2024_1 (11:20):
Oh,
ed--ejbarton-centerbridgela (11:21):
but what I want to talk about when
you,
rory-liebhart_2_11-12-2024_ (11:23):
it.
ed--ejbarton-centerbridge (11:24):
What, when you asked your question,
Emily, it was the, a conceptcalled the Laffer curve, which
looks like this, whichessentially says at a certain
point, there's a decreased, adecrease in income tax will
cause an increase in income tax.
Tax revenue.
(11:44):
So there's an optimal pointbecause folks at some point,
like if you tax a hundredpercent, people go, screw it,
I'm not going to work and theydon't work.
If you tack a zero percent,you're going to get no, no
revenue.
And so there's this conceptcalled the Laffer curve, which
some folks who are lesseconomically inclined kind of
dismiss, but there's a truth tothis, which is there's an
(12:07):
optimal tax rate to maximizeincome.
And the argument that you weremaking is yes, the policy, the
tax policy decisions that aremade are generally done for two
reasons.
One is to stimulate the economy
emily-sander_2_11-12-202 (12:19):
right.
ed--ejbarton-centerbridgelaw (12:20):
to find the optimal point on the
Laffer curve, where it maximizesgovernment revenue,
rory-liebhart_2_11-12-2024_1 (12:25):
up by
ed--ejbarton-centerbri (12:26):
because.
rory-liebhart_2_11-12-202 (12:27):
Yeah.
ed--ejbarton-centerbridgel (12:27):
Yep.
Because you reduce the rate,which then causes additional
business activity, which thencauses additional revenue and
the decrease in the rate, theincrease in the revenue more
than offsets a decrease in therate.
So that's, that's one piece.
And then the other piece for taxpurposes is, goes to what Rory
was talking about, which is.
Tax policy is a secondaryapplication of other regulatory
(12:50):
policy.
So you can go, I'm going to taxgasoline
rory-liebhart_2_11-12-2024 (12:53):
hmm.
ed--ejbarton-centerbridg (12:53):
reduce the demand on gasoline and
utilize the proceeds from thatto off the, the, you know,
offset carbon emissions, forinstance.
And so the combination of thosetwo things, Republican.
Republican administrations tendto be less of a regular, tend to
have less regulation.
They tend to use tax policy lessas again, historically, I'm not
(13:18):
necessarily sure that's going tobe the case here, but the
historically they've used taxpolicy less to, to kind of drive
regulatory outcomes.
And they've tried to optimizethat laugher curve and, uh,
democratic, uh, Democratic, uh,policymakers have tended to look
at the social costs as opposedto the just financial costs and
(13:39):
have tended to have a higherregulatory, uh, environment,
which tends to be more cost ofbusiness.
emily-sander_2_11-12-2024_160 (13:44):
I feel like the laugher curve
should have a joke attached toit.
It needs to be a funny curve.
Um, what?
rory-liebhart_2_11-12-202 (13:51):
Yeah.
Turn, turn that curve upsidedown.
emily-sander_2_11-12-2024_1 (13:55):
Oh, so we're in a pit.
Um, so if we think about some ofthe 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_ (14:06):
Mm.
emily-sander_2_11-12-2024_160 (14:06):
I mean, if you're a founder in one
of those phases, if you're a P Efrom one of those phases, and
now you have this new politicalenvironment with different
regulations, um, and different.
Things that are happening in themarket, like how do you do
something differently?
Do you adjust?
Do you accelerate things?
Do you slow down?
Okay.
Oh boy.
ed--ejbarton-centerbridgelaw (14:26):
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 rocketas soon as this
emily-sander_2_11-12-202 (14:32):
You're on a roll.
Keep going.
ed--ejbarton-centerbridgelaw (14:34):
so
rory-liebhart_2_11-12-2024_1 (14:35):
I,
ed--ejbarton-centerbridg (14:35):
you've got really.
Yeah.
For, for the most part, kind ofceteris paribus, all things
being equal, you businesses aregoing to generally do better in
a business friendly environment.
Now there's other social costsand other offsetting costs.
So again, it's not like aeverything wins.
The, it depends is you haveprivate equity investors, you
(14:58):
have startups, you havebusinesses that have focused in
some of those key regulatoryareas that were invested in
deliberately as part of the, youknow, inflation reduction act
and the green new deal, uh, typelegislation and investments
were, if that gets cut, thoseinvestments, those private
equity investments are going toget cut.
are going to underperform, thosecompanies are going to
(15:20):
underperform.
And if you were kind of bettingon a, a Harris administration or
a second term of a Bidenadministration, that was your
business thesis, or your privateequity maybe, maybe in a.
Case where you've got to pivotyour strategy because some of
those tax policies, regulatorypolicies, and, you know, kind of
(15:44):
the environment is not going tobe offset.
emily-sander_2_11-12-2024_1 (15:48):
So, so as an example, I know it
depends, but one scenario mightbe.
If, if a company was kind of onthe edge, kind of on the fence
and we could sell now, like wecould go, you know, do the
whole, um, not the rodeo, butkind of like on, on tour with
the pitch deck and going out totry to find buyers.
But maybe we wait a little bit.
(16:08):
Does this now accelerate itwhere, okay, we do have a window
rory-liebhart_2_11-12-202 (16:12):
Yeah.
emily-sander_2_11-12-2024 (16:12):
where it's tax advantaged.
It's, it's conducive to whatwe're trying to do.
Everything's working in ourfavor.
So maybe that tips it over theedge on timing.
rory-liebhart_2_11-12-202 (16:22):
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 aroundthem, you know, always financial
services.
I think last, last bigregulation change that I would
remember was back in 2010 Frankact and banking and all that.
(16:43):
And that added a heck of a lotof regulation to.
services industry.
So now, you know, I think havingspoken with folks ahead of the
election, I think there wasconcern about financial
governance being even moreregulated than was today.
So therefore, people might havebeen waiting and seeing what
happens now.
I think there's a strong viewthat, you know, At least for the
(17:05):
next four years.
Plus, you know, that stuff kindof could get kicked down the
road.
And so, yeah, maybe if you're onthe sidelines now, you can
exercise some options, so tospeak, to see, see if you can go
get a deal done when maybe youwouldn't have been able to get
the kind of valuation youthought was reflective of the
intrinsic value of your businessbecause of this pending.
(17:25):
You know, pending potentiallegislation 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 marksthat are no longer there,
(17:48):
perhaps because, you know, witha, with a Trump administration
coming in, you know, they'vemade it very clear that, you
know, they're all about, youknow,
ed--ejbarton-centerbridge (17:58):
Drill baby drill.
rory-liebhart_2_11-12-20 (17:59):
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 maybeliquidate 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 dueto the potential tax
(18:21):
implications from that, that I'dtalked about earlier.
So it's kind of a double youtalk about double whammies.
This could possibly be a doublepositive.
In some ways,
emily-sander_2_11-12-2024_ (18:30):
It's kind of interesting because you
said like four plus years, butbecause Trump has been president
before, he, he has four yearsand that's it, right?
That's, you cannot, you can't doan FDR.
ed--ejbarton-centerbridgela (18:41):
you can't run
emily-sander_2_11-12-2024 (18:42):
Yeah.
So he's got, that's interesting,he
rory-liebhart_2_11-12-202 (18:45):
Well, I guess, yeah, I guess, yeah,
you're right.
It is, he's, it is only fourmore years, but, um,
emily-sander_2_11-12-2024_1 (18:50):
one term.
I mean, like he has four years,
ed--ejbarton-centerbridgela (18:52):
the timing though, is interesting in
that the.
The policy impacts because thelast time he was sitting here
and basically it was a, it was aseven year, eight year run.
And they said, okay, we're goingto let basically run this tax
cuts and jobs act out for eightyears.
And then I think everybodyanticipated there's, or at least
(19:14):
not everybody, but I'm, I'mcertain a number of folks
anticipated there'll be a changeof 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 eightyears more or 12 years more on
the tax side and basically go,these tax provisions don't
(19:35):
sunset.
Now that doesn't mean that theycan't be changed by subsequent
legislation, but it would notsurprise me if the, if the.
Hand of the Trumpadministration.
Um, just like the old onecarried through the Biden
administration.
If this one doesn't carrythrough the next couple
administrations as well.
rory-liebhart_2_11-12-2024_ (19:51):
you know, this is perhaps a cynical
view, but you know what I, whatI've seemed
ed--ejbarton-centerbridgel (19:56):
It's politics.
How could he be cynical?
rory-liebhart_2_11-12-202 (19:59):
yeah, yeah, I'm like, how did, why did
I agree to do a politics podcaston 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 withperception and sentiment rather
than happenstance.
So, like, in other words.
Stuff we're talking about may behappening.
(20:19):
I don't think it's all going tobe done in an executive order,
January 7th, this year, orwhatever inauguration day is,
whatever, but, but it's, it'sthe perception of what the, what
the future road looks like forpeople that are there to make
decisions about their businessor their, their commerce.
And so I think people are maybemore, more inclined to, let's
(20:40):
just say, take some riskperhaps, uh, in this
environment, then maybe theywould have been in a different
administration, you know, just.
It's just, like I said, it'sabout 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_1 (20:53):
How much of that perception is
already baked into the marketright now?
rory-liebhart_2_11-12-2024_ (20:58):
Now I'd say it is, I mean, a week, a
week removed, but certainly, Imean, just how much things pop
to the day or two after.
And again, the market is veryrational 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 theelection, that's for sure.
We know that.
ed--ejbarton-centerbridgelaw- (21:16):
I think the other, the other piece
that,
rory-liebhart_2_11-12-202 (21:18):
yeah.
ed--ejbarton-centerbridgel (21:18):
that folks kind of to Rory's point.
The stuff we've talked aboutalready is baked in what I don't
think is baked in and what Ithink is, is in the kitchen
getting, getting spun up
rory-liebhart_2_11-12-2024 (21:32):
it's
ed--ejbarton-centerbridgela (21:33):
is,
rory-liebhart_2_11-12-202 (21:33):
It's, you
ed--ejbarton-centerbridgelaw (21:34):
is what, what are the impacts?
What's the, what's the breadthand impacts of potential tariffs
rory-liebhart_2_11-12-20 (21:39):
That's
ed--ejbarton-centerbridgela (21:39):
how does, how does that, how does
that impact supply chains in theU S which then have downstream
impacts for manufacturers andretailers and pretty much
anybody else in the, in the U S.
So you've got the, the impactsof tariffs, which has been a.
cornerstone of, of, uh, ofpresident Trump's proposed tax
policy and trade policy.
(22:00):
And then the second is whatimpacts will the potential and
what's the effectiveness of apotential deportation of.
rory-liebhart_2_11-12- (22:09):
exactly.
ed--ejbarton-centerbridgel (22:11):
non, documented slash illegal,
depending on which side of the,uh, political aisle you're on,
of immigrants and how does thatimpact the labor, uh, labor
position in the U.
S., both cost of and supply oflabor.
And how does that havedownstream impacts on both
demand and supply for U.
(22:31):
S.
goods?
And again, those, thoseelements, I don't think we know
enough to know how they'rebaked, how they're baked in the
cake.
I think the tax pieces thatwe'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 thatI just talked about are not
baked in.
I think that's something thatprivate equity investors, that
(22:51):
founders, that pretty much allof us are going to have to think
through as we're kind of lookingforward.
Um, and then we're going okay,what impacts are these going to
have on our businesses or ourinvestments?
Yeah.
emily-sander_2_11-12-2024 (23:02):
Yeah.
And I mean, we, we all have beenin multinational, uh,
corporations and I mean, Iremember it was back in like
2010 timeframe where, um,Ireland, so like Dublin had
these massive tax advantages.
So a lot of people move theirheadquarters to, to Dublin just
to get,
rory-liebhart_2_11-12-2024 (23:20):
Hmm.
emily-sander_2_11-12-2024_ (23:20):
just to get that, um, yeah.
So there's like these, thesethings where.
You, they can swing the wholestructure of a company, or at
least the tax footprint of acompany based on these policies
and regulations.
rory-liebhart_2_11-12-202 (23:34):
yeah, when you're talking about, you
know, 100, 200 percent tariffson incoming goods in certain
sectors, I mean, you know, whatsectors 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 likefood and, you know, soybeans and
(23:55):
whatever it may be like, yeah, Ifind that's where it's probably
going to be not as cut and dryas maybe media would make that
out to be as far as a position.
Like, it just seems to me thatwe are so dependent on goods
coming in and we are sodependent on labor.
Um, that's inexpensive.
(24:16):
Uh, and.
You know, also innovation fromfolks that, you know, come to
the U S from all parts of theworld as well.
I've, I've often, I've wonderedthat recently is like, you know,
is, is, is any sort of, let'scall it protectionist policy
going to hurt our ability toinnovate and be kind of at the
forefront of, of the world interms of technology and other,
(24:39):
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 (24:46):
well, it's interesting because we've
seen a Trump administrationbefore.
Granted, it was, it was.
Four years ago.
But, and so I'm sure people aresaying, okay, we've kind of, we,
we generally think we know whathe's about.
And then we have these, theseopen switches that we've talked
about here.
So like, what, what should we belooking for?
Like, okay, when a decisioncomes down on this, that will
(25:09):
definitely swing things here.
What, what types of thingsshould we keep an eye out for?
rory-liebhart_2_11-12-202 (25:13):
well, I would say certainly, you know,
uh, appointees in certain partsof the cabinet would come to
mind for me, you know, I thinkwhether the appointees are.
You know, um, let's just saypeople fit to be in those roles
makes a big difference, youknow, and that's one thing we'll
(25:33):
see right out the gate with, youknow, it's not like this stuff
has in, in most cases has a lotof pushback from Congress.
It's like who, who getsappointed by the president is in
those roles, you know?
I think that'll have a lot to dowith it out the gate.
ed--ejbarton-centerbridgela (25:49):
the biggest elements that I think
people, uh, generally, uh, don'tunderstand well is how much
power, and this goes to Rory'spoint, the, um, The executive
branch has to developregulation.
the regulatory environment islargely not Congress.
(26:11):
Congress kind of passes thesebroad bills to say, you know,
regulate pollution.
And then the, the head of theEPA and his, In this case, it's
because it looks like it's LeeZeldin that's being appointed to
the head of the EPA.
They develop a, a regulatoryframework to be able to meet
Congress's intent.
Now over the last, and this it'sfunny because, you know, it's
(26:32):
one of those, be careful forwhat you wish for things over
the last, you know, 30 years orso, there was this concept
called Chevron deference, whichbasically said, if the
regulatory, if the, that likethe EPA said, this is how the
regulations supposed to beinterpreted.
Courts would defer to that.
Now the Supreme Court.
So they, you know, if they said,well, that means that includes
(26:53):
carbon, they defer to it,including carbon.
If they said it doesn't includecarbon, they defer to it, not
including carbon.
Supreme Court and largely basedupon, um, uh, appointees from,
uh, Presidents, Bush and Trumpoverturned Chevron deference
last year, which now kind ofthrows some of those regulatory
interpretations back to thecourts.
(27:14):
And so historically, uh, Trumpputting someone like Lee Zeldin
and Lee Zeldin could really gut.
The, the EPA, for instance, andthe regulations now there may be
folks who go, no, that wasn'tCongress's intent.
I'm going to sue to maintainthose regulations that you're
going to get standing and issuesand stuff like that.
But it, it's the, the appointeeshave a lot of power to gut that
(27:35):
regulatory environment or framethat regulatory environment to
support the administration'spolicies.
And that's, you know,environmental policy, that's
trade policy, immigrationpolicy, pretty much everything.
Yes.
Consumer financing, CFPB,
rory-liebhart_2_11-12-202 (27:47):
Yeah.
ed--ejbarton-centerbridg (27:48):
pretty much anything.
emily-sander_2_11-12-2024_16 (27:49):
So it sounds like the, the
appointee before.
Could they kind of had not freereign, but they, they were where
the buck stopped in terms ofinterpreting the intent of
Congress.
And now that has switched to theSupreme court
ed--ejbarton-centerbrid (28:03):
Others.
emily-sander_2_11-12-2024 (28:03):
where there's a mechanism by which you
can say, no, I don't thinkthat's
ed--ejbarton-centerbridge (28:07):
Yeah, there's an Administrative
Procedures Act that requireshearings and stuff like that.
But at the end of the day, therewas a lot of latitude, and that
latitude has been somewhatremoved from the, from the
regulators.
emily-sander_2_11-12-2024_1 (28:18):
who are, so who are the, you
mentioned some of them, but whoare the key appointees we should
be watching for that affectprivate equity space most.
ed--ejbarton-centerbr (28:28):
Secretary of the Treasury,
emily-sander_2_11-12-2024_1 (28:30):
For sure.
Yeah.
ed--ejbarton-centerbridgel (28:32):
then you've got your, your, uh, S.
E.
C.
appointees and when, whenpresident flips the There's a
lot of bipartisan commissions,so like the SEC, the Federal
Reserve, that they get kind of aplus one majority for the, the
president's, uh, thepresident's, uh, uh, appointees.
So some of these appointees willflip.
(28:54):
Um, National Labor RelationsBoard is going to be an
important one.
Um, so NLRB, um, the EPA,
rory-liebhart_2_11-12-202 (29:01):
Yeah.
ed--ejbarton-centerbr (29:02):
Financial Protections Bureau, there's, you
know, pretty much, almost likethere, there isn't one that
isn't.
Can it be important?
I think, you know, Department ofEducation, maybe, maybe less so,
but Treasury, CFPB, FederalReserve appointees,
rory-liebhart_2_11-12-202 (29:19):
Yeah.
ed--ejbarton-centerbri (29:19):
judicial appointees.
rory-liebhart_2_11-12-2024_ (29:20):
And the reason for that is simply
because, and you talk about inthe context, private equity,
private equity is, you know, alot of people think it's private
equity backs, you know,manufacturing and financial
services.
But the fact is that privateequity is a, as we've talked
about a key tenant of everyindustry in every business
worldwide.
And so presumably, you know, Theinfluence of someone at the top
(29:43):
of one of these agencies canimpact, you know, the interests
of private equity in very directways, regardless of industry,
emily-sander_2_11-12-2024_16 (29:51):
If you're a managing director of a
PE firm, I know this answerdepends as well.
Like what's your response toTrump being elected?
rory-liebhart_2_11-12-2024_ (29:58):
the lobbying dollars and get
somebody staked out inWashington, D.
C.
ed--ejbarton-centerbrid (30:01):
You're, you're, you're happy that
probably your carried interest,your carried interest treatment
for your, uh, investment islikely to be maintained.
Although again, that's when I goback to the beginning of the
podcast and I said, you know,the populist
rory-liebhart_2_11-12-202 (30:16):
Let's
ed--ejbarton-centerbridgela (30:18):
may over overwhelm some of those
elements where, so I'll give theexample when, when we talk about
the.
The private equity fees, the 2percent that goes over to the
private equity firm, kind ofthis two and 20 concept, the 2
percent gets treated asbasically as ordinary income.
The 20 percent gets treated aswhat they call carried interest.
And you get capital gainstreatment.
(30:39):
So on one hand, if I was a, if Iwas a MD at a, at a private
equity firm, I'm like, good, mycapital gains.
rates stay low my carriedinterest, you know, I get more,
more, it's likely that that'sgoing to continue, but I would
not be surprised if as a, youknow, a little bit of
Robespierre move in the, in theCongress, if they don't go,
(31:02):
we're going to,
rory-liebhart_2_11-12-2024 (31:03):
deep
ed--ejbarton-centerbridge (31:03):
we're going to,
rory-liebhart_2_11-12-2024 (31:04):
Yes.
ed--ejbarton-centerbridge (31:04):
Yeah, we're going to, we're going to
take some of these PE andventure folks, especially the
ones that were so supportive of,of, you know, again, some of
those were more supportive ofHarris than they were of Trump
on the, on the, uh, donationside.
And we're going to put thatcarried interest on the table as
a way to raise revenue, tooffset some of the other tax
(31:25):
cuts that we might want to giveto 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 (31:33):
Yeah,
ed--ejbarton-centerbrid (31:33):
hitting your pocketbook.
That's a big one
emily-sander_2_11-12-2024_16 (31:36):
so wait,
ed--ejbarton-centerbrid (31:36):
carried interest gets treated.
emily-sander_2_11-12-2024_16 (31:38):
so wait, they would take that away?
ed--ejbarton-centerbridgela (31:40):
Oh, yeah, and treated as ordinary
income.
emily-sander_2_11-12-2024_1 (31:42):
Oh,
rory-liebhart_2_11-12-2024 (31:43):
were talking about.
It's the difference between, youknow, uh, 20 percent and 30 some
odd percent
ed--ejbarton-centerbridge (31:49):
Yeah, 30, 30, 37 is likely that's the
top top rate right now.
emily-sander_2_11-12-2024_16 (31:54):
oh my gosh, okay.
rory-liebhart_2_11-12-202 (31:55):
Yeah.
emily-sander_2_11-12-2024 (31:56):
Okay.
What else should we be thinkingabout?
New president comes in andanytime a new president comes
in, it, you know, their policieswill shape the market and
environment that PE firms andother companies have to have to
ed--ejbarton-centerbridgel (32:11):
The,
emily-sander_2_11-12-2024_1 (32:12):
in.
ed--ejbarton-centerbridgela (32:12):
the other piece, the other piece to
keep in mind is it's is it tendsto be a longer cycle than, than
most people think.
So, so President Trump shows upJanuary 20th, the impacts of
the, the AdministrativeProcedures Act, which I talked
about, that regulatoryenvironment, they have to do
hearings and things like that tomake changes.
You got executive orders, butthose, you know, again, you can
(32:33):
do those day one, but they taketime to implement.
So as a result, you're almosttwo years in before you really
start to see the impacts of whatthe, of what the, um,
administration's going to do,you have a tax bill that passes,
um, which can be the followingyear.
rory-liebhart_2_11-12-202 (32:49):
which maybe felt, you know, a couple
years later that the newadministration claims
responsibility for because it
ed--ejbarton-centerbridge (32:56):
Yeah.
They either
rory-liebhart_2_11-12-20 (32:57):
right?
ed--ejbarton-centerbridge (32:57):
claim responsibility or benefit.
Yep.
rory-liebhart_2_11-12-2024_1 (32:59):
or red.
That's always the way it goes.
Yeah.
ed--ejbarton-centerbridgel (33:01):
Yep.
rory-liebhart_2_11-12-2024_ (33:02):
you know, I'm quite interested to
see, um, you know, how thegeopolitical things, you know,
that we've been, you know,finding ourselves involved with
over the last few years shakeout, you know, certainly Trump
is very Very much like I'm goingto resolve these things, you
know, once and for all, and, um,you know, I think that would be
interesting to see how thatplays out because defense
(33:23):
spending also, you know,something that private equity
backs, all these things, youknow, it's just like, you know,
if the really big rocks to me ordomestic economy, you know,
including fiscal policy, youknow, uh, foreign policy, you
know, I think, that's, you know,Um, you know, being, being in
(33:43):
the country we are and seeinghow that plays out, I think both
of those things, you know,should know relatively soon how
things are going to start totrend, but the policies around
that will take some time toimplement.
ed--ejbarton-centerbridge (33:55):
think the other, the other part I'm
going to your kind of commentabout any time a president
changes, I think more importantthan the president changing is
take a step back and look at thetrend of the electorate over a
12 to 18 year cycle and go, howis, how is the culture changing?
How are the.
(34:16):
How is the economy shifting?
Because the president, thepresidential elections, the
congressional elections are kindof a reflection and they're not
a perfect reflection.
It's sometimes a funhouse, butit's a, it's a, it's a
reflection of kind of whatsociety is doing.
And if we look at, If you lookat kind of from forward, the
(34:36):
electorate has slowly beenshifting, you know, it's shift,
it's slowly been shifting to bea 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 Trumpelection coupled with some of
(34:58):
the elections we've seen inEurope is, is this.
Are we going from a period thathas been like from 1980 to let's
call it 2020, you know, a 40year period of globalization to
now a another period similar tothe 19, 19, 1890s to the 1940s
(35:18):
of national, more of anationalist, uh, Type drive and
that for private equity folkswho are looking at long term
time horizons, you know, 10 yearinvestment time horizons and
trying to pick the trends.
It's less about how thepresident vote is, is, cause
that'll change, but it's, isthat fundamental?
there a fundamental shift in howsociety is viewing the economy
(35:39):
and how society is viewing therole of the federal government
and the state governments?
And can you pick up on that?
emily-sander_2_11-12-2024 (35:46):
Yeah.
rory-liebhart_2_11-12-2024 (35:46):
Mhm.
emily-sander_2_11-12-2024_160 (35:47):
I mean, we have baby boomers going
out of the, out of the jobmarket and we have, As we talked
about before, like potentiallynew, new people coming in from,
from different sources and allthose things.
So it literally like the, themakeup of the country.
(36:08):
is shifting.
I mean, it always is.
But I mean, I think that thebaby boomers and some of these
other, other influxes,
ed--ejbarton-centerbridgel (36:14):
born in the fifties and sixties
emily-sander_2_11-12-202 (36:15):
that's huge
ed--ejbarton-centerbridgela (36:17):
are now aging out.
And that was a, that was a, um,that was a period when folks
grew up there where it was, itwas, I don't want to say
fashionable, that's not fair,but it was, it was expected that
you were going to be a littlebit resistant to authority.
You're going to questionauthority more.
You had, you know, the, the.
68, um, you know, kind of 1968kind of combination of Vietnam,
(36:40):
civil rights movements, allthose, those kind of fundamental
changes the generations afterthat.
And, and, you know, I've hadconversations with numerous
folks who are seeing the samething generations after that, of
which, you know, I, I, Just kindof take into that generation X
piece.
Cause I'm, I'm the old guy.
Um, they tend to be moreconservative generally.
(37:01):
Um, and so, and millennials aremore, are a little less
conservative, but then the, thenew gen Y, gen Z tend to be even
more conservative.
And so it's, again, I think wemay be, I'm not sure what all
that means, but it's, but likeyou said, demographics and baby
boomers aging out is, is goingto have
emily-sander_2_11-12-2024_16 (37:17):
My last question for you would be,
what is, what would be asurprise?
But definitely possible waslike, Ooh, like didn't expect
that.
That's a dark horse, but okay.
Now that's in play.
rory-liebhart_2_11-12-20 (37:30):
Again, cynical Rory here, I think
surprising, but possible wouldbe that, you know, new
administration kind of deliverson 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 thosepolicies are very pro
capitalist.
So if those all come to be, we,as capitalists, you know, have
(37:51):
the potential to see a lot ofbenefit.
There are associated costs withthose things, as I'd said, which
is correct.
But, you know, like I, I'd be, Ithink it's possible that, you
know, things could play out, uh,as, as stated, but, you know,
I'd be surprised if it playedout as exactly that, that way.
ed--ejbarton-centerbridge (38:09):
Yeah, I would agree with that.
I think my.
but, or surprised, but possiblewould be Trump administration
antagonizes China
rory-liebhart_2_11-12-202 (38:19):
Yeah,
ed--ejbarton-centerbridgelaw (38:19):
to the point
emily-sander_2_11-12-2024_1 (38:20):
Oh,
ed--ejbarton-centerbri (38:20):
actually makes a move on Taiwan, which
impacts the semiconductors andother, and other supply chain
issues.
Um, or you see the same,something similar with North
Korea, um, where again, it dragsChina into a conflict with the U
S China's got a, is, is got aneconomy that's kind of
struggling right now.
Um, struggling economies tend tocreate.
(38:44):
some level of instability withthe, with the government.
And that's something that theChinese government is not, is
not going to be willing totolerate.
Um, so it would not surprise me.
I I'd be surprised, but I wouldnot be shocked.
And I think it's possible to seea U S China type, um, conflict,
whether that's, whether that'shot or, or cold, um, over the
(39:07):
next four years.
rory-liebhart_2_11-12-2024 (39:08):
kind of speaks to what we were
talking about earlier aboutmaking sure they're, I guess the
right people are in theadministration surrounding the
president.
And you know, um, I've heardsome 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 reallygood one, Ed.
I you're spot on.
(39:28):
That's yeah.
Yeah.
That's, uh, yeah.
emily-sander_2_11-12-2024_1 (39:32):
All right.
So those are the things or somethings to look for.
And we'll certainly bediscussing this again and again,
as developments come up and newstories and appointments and
different geopolitical eventshappen.
But, uh, we'll call it a wrapfor that one, but this we're now
in kind of on our way to asecond Trump administration, not
consecutive, but a second one.
And we will see what unfolds.
(39:54):
From here.
Thanks, Ed.
Thanks, Rory.
rory-liebhart_2_11-12-202 (39:56):
Thank you.
ed--ejbarton-centerbrid (39:57):
Thanks.
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