5 Fears and Dreams by Sovereign Funds Regarding Trump’s America

Will Donald Trump’s proposed policies drive up U.S. consumer and business spending – a number of large sovereign funds think so? Could the U.S. reach 4% GDP growth in 2017?

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On January 16th, the International Monetary Fund (IMF) raised its forecast for the United States over the next two years. Why? The IMF believes Donald Trump’s business policies could be a boon for American economic growth. However, the IMF warned publicly that Trump’s protectionist trade proposals could provoke trade wars, a scary scenario for global sovereign wealth investors. Other concerns by public funds include how a rise in U.S. interest rates could impact asset prices and rapid currency movements in the U.S. dollar.

U.S. Shifting from Monetary Policy Toward Fiscal Policy

During the global financial crisis of 2008, wealth funds were opportunistic, deploying cash to scoop up distressed companies and assets. As quantitative easing (QE) policies dragged on in Japan, the U.S. and Europe, public funds grew frustrated in finding suitable investments. Under U.S. President Barack Obama, the low-yield environment was greatly prolonged, forcing sovereign investors to desire private markets over public markets. Wealth funds like the Abu Dhabi Investment Authority (ADIA) have increased allocation toward private credit funds, while funds like Australia’s Future Fund committed to high-yield funds managed by firms like Haymarket Financial, Oaktree Capital Management and Westbourne Credit Management Limited. Wealth funds are anxious to see Trump’s implementation of possible tax cuts, proposed infrastructure plan and de-regulation in certain industries which could summon animal spirits.

Infrastructure Dreams

Faced with low returns in public markets and seeking to lockup intergenerational capital, sovereign funds from Asia and the Gulf region are keen on U.S. infrastructure. They are waiting for national plan. For example, publicly, both the China Investment Corporation (CIC), Qatar Investment Authority (QIA) and Kuwait Investment Authority (KIA) have indicated a preference to invest in U.S. infrastructure both greenfield and brownfield.

Fear of Protectionism and Trade Restrictions

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