Tax reform, deregulation expected under Trump but details elusive

Washington insiders working for private equity expect changes on deregulation and tax structure under the incoming administration of Donald Trump, but specifics remain unclear at this point, according to an expert panel taking part in a Buyouts webinar.

Experts from the Small Business Investor Alliance, the Association for Corporate Growth, and the International Limited Partners Association weighed in, along with a GP at Huron Capital and an executive from a service provider.

“Here in Washington, people have stopped crying in the streets,” said Brett Palmer, president of the SBIA. “Things are going to change.”

Much of the GOP leadership in the U.S. Senate remains unchanged, with Mitch McConnell (R, Kentucky) as majority leader, he said. But the Senate lacks the 60 votes it needs to override Democratic challenges on some key votes, he said. “They will be able to do a lot of things, but they won’t be able to roll over the Democrats,” Palmer said.

The GOP continues, however, to enjoy a healthy majority in the U.S. House of Representatives.

In the White House, Trump remains “difficult to read,” Palmer said. But he’s already made appointments of known tax reformers and deregulators.

“Everything is on the table,” Palmer said. “On tax reform, there’s a potential for very large changes. … You’ll see checks on regulators … for the first time in a long time.”

Tax reform will be front and center for Republicans, who will no longer face a presidential veto for their Better Way tax plan. Tax changes could come as early as 2017, along with a change of some kind in the Affordable Care Act, he said.

Regulatory reform may take longer, with a repeal of the Volcker Act — a component of the Dodd-Frank legislation that regulates banks in private markets, which may be on the docket.

Palmer urged PE firms to build relationships with House members and senators and step up to play a role in Washington as the new administration and Congress solidify their appointments in the first 100 days. “They’re looking for good people,” Palmer said. “If you have good names, put them in.”

Portfolio companies owned by private equity firms also need to get engaged with their various trade associations, he said.

Amber Landis, vice president of public policy for ACG, said regulations may lighten but won’t go away entirely. “The game has changed, but industries shouldn’t react or overreact too quickly,” Landis said. “Washington moves at its own rhythm.”

Trump has repeatedly signaled that his early priorities will be around illegal immigration, replacing the Affordable Care Act, at least one Supreme Court appointment, strengthening the military and tax reform. Dismantling of Dodd-Frank will be a priority as well.

The SEC also may have a new chief by inauguration day after Mary Jo White steps down. Two contenders for the job include Paul Atkins, a former SEC commissioner who has criticized SEC rules; and former federal prosecutor Debra Wong Yang, now a Los Angeles attorney, she said.

While the SEC’s enforcement unit won’t go away, the regulator may see a drop in examiner positions during the budgetary process, Landis said.

“On the regulatory side, make sure you’re proactive,” Landis said. “Make sure you’re taking credit for what your firm is doing. … Document things.”

Regulation is not going away, she said. The coming year will present opportunities and challenges, she said.

Gretchen Perkins, partner at Huron Capital, said the market for middle-market deals is expected to remain strong. But the global economy faces headwinds related to Brexit and the growing feeling that the industry remains late in the economic cycle.

“Everyone expects another very robust year of M&A activity, given the overall economic climate and the expectations going forward,” Perkins said. Industries with tailwinds may include energy and infrastructure; while alternative energy may face headwinds. Healthcare remains a question mark, she said.

Jennifer Choi, managing director of industry affairs for ILPA, said the SEC’s focus under White on transparency echoed LP concerns about PE. The group plans to launch an update on its ILPA principles — essentially a list of its preferred terms and conditions in limited partner agreements — in 2017. It’ll also continue to focus on its reporting template for fees, expenses and carried interest. Ten GPs have endorsed the template thus far, she said.

Action Item: ILPA https://ilpa.org/; ACG http://www.acg.org/default.aspx; SBIA http://www.sbia.org/

Photo of Brett Palmer courtesy of the SBIA