Trump's first 100 days — what has changed?

When Pensions & Investments' reporters spoke with insiders late last year about the impact the then-incoming Trump administration would have on the money management industry, and sectors in which institutional investors put their money, many had theories. But most believed it was too early to tell.

With the administration hitting its first 100 days, P&I went back to our sources to gauge their opinions about President Donald Trump's policies.

Bottom line: There is some clarity now, but in general it is still uncertain.

Mr. Trump has scored points for tackling what many perceive as regulatory excess, demanding that regulators toss out two existing rules before they add a new one. In the first 100 days of his administration, his preferred weapons were 30 executive orders that directed, among other things, federal agencies to revisit everything from financial regulations to the fiduciary rule, and Congressional Review Act resolutions to nullify Obama-era rules from 2016, including a safe harbor for cities to create private-sector retirement initiatives.

Those reviews won't happen quickly at the Department of Labor and the Securities and Exchange Commission, with Alexander Acosta at the DOL just confirmed April 27 and nominee Jay Clayton at the SEC still waiting to be confirmed.

Aside from an early victory in getting Neil Gorsuch, his Supreme Court pick, seated, the president has yet to be tested on Capitol Hill on big-ticket items like tax reform and federal spending. Mr. Trump and congressional Republicans failed in early April to repeal and replace the Affordable Care Act.

The president's proposal for tax reform, unveiled on the 97th day, offered few details beyond a flat 15% rate for companies and pass-through partnerships, and fewer rates and deductions for individuals, who would keep a tax break for retirement savings. It did not include a way to pay for tax reform, and did not address the tax advantages of companies sponsoring retirement plans.

“Some things will get done, but at a much slower pace,” said Shawn K. Lytle, head of Macquarie Investment Management, Americas, and president of Delaware Funds, in an interview at Macquarie's New York office on April 5. “That's natural. There's the initial optimism, but then reality starts to set in.”

“There will be more money in motion over the next three to five years than there was in the last three to five years,” he added, attributing that to trends in the industry.

Mark K. Okada, co-founder and chief investment officer of Highland Capital Management LP, Dallas, said in an email that even though the nation is three months into Mr. Trump's presidency, it's still too early to have a strong view on his impact. “He doesn't have the people in place to provide details on some major policy initiatives that remain ambiguous,” said Mr. Okada.

“The question is: Will Trump's populist leanings get in the way of the pro-growth agenda that the business world is hoping for? We think markets will likely to go sideways until we get some clarity there.”

Roger Aliaga-Diaz, Vanguard Group Inc.'s chief economist, Americas, Malvern, Pa., told P&I: “There has been a significant and positive market reaction to some of the policies proposed by the Trump administration,” including tax reform and infrastructure investment.

“The global reflation and normalization in global bond yields and bond risk premia has removed deflationary concerns by central banks and has improved the prospects of an eventual monetary policy normalization,” he said.

Rick Lacaille, executive vice president and global chief investment officer at State Street Global Advisors in Boston, said the most visible manifestation of the first 100 days has been the perception among investors that policies that could boost short-term growth and inflation would unfold — perhaps even longer-term growth could rise “if the policy mix favored greater corporate investment spending and smart investment in infrastructure.”

“Markets weighed the attractive parts of the policy mix, such as tax reform, infrastructure spending and deregulation more heavily than the less attractive, such as protectionism, immigration control and isolationism,” Mr. Lacaille said.

At the end of 2016, Cosimo Marasciulo, Dublin-based head of European fixed income at Pioneer Investments, said the firm believed the market was looking for reflation/risk-on trades, and that would lead to core fixed income underperforming.

However, Mr. Marasciulo said Mr. Trump has found it harder than he perhaps thought to deliver on some of his election promises, most notably in the areas of health care and tax reform. “That has led to concerns that the reflationary boost that markets priced into asset valuations in the aftermath of (his) election might not materialize,” Mr. Marasciulo said.

But in Europe that's less of an issue, he added, mainly due to the strength of the economy. Above-trend growth in the eurozone should lead to a closing of the output gap, falling unemployment and pressure for higher wages.

“Against that backdrop, there will be members of the ECB Governing Council questioning the need for an extremely accommodative monetary policy stance that was designed for a time when the European economy was facing recession and deflation. So we expect the debate about tapering of QE purchases and an increase in the deposit rate to become louder in coming months, especially now that the French elections look unlikely to upset the fixed-income markets.”

Julian Mayo, co-chief investment officer of Charlemagne Capital Ltd. in London, had expected the Republicans being in control of both chambers of Congress to increase the likelihood of the president carrying out his policy platform, including greater protectionism.

But there were potential positives — a sell-off in the U.S. dollar would reduce the weakness of emerging market currencies, and there might be bright spots among those with lower exposures to international trade, such as India.

But since Mr. Trump took office, Mr. Mayo said, the fact that he “has not carried through ... on his more protectionist measures I think is a good thing for the global economy, and also for emerging markets. We did think at the time the rhetoric was going to be overwhelmed by the reality of being in office, and it has worked out that way so far.”

Mr. Trump has been more conciliatory toward Mexico, China has not been accused of currency manipulation and the meeting with China's President Xi Jinping went well, albeit overshadowed by airstrikes on Syria, he said.

“Overall, it seems the reality of governing the world's largest economy has proved a little more complicated than the rhetoric,” Mr. Mayo said.

“Meanwhile ... emerging markets economies seem to be recovering,” the global trade multiplier is recovering, trade numbers are expanding and overall there is a better environment for emerging market economies and their stock markets,'' Mr. Mayo said.

Economic and political uncertainty sparked by Mr. Trump's election caused some real estate transactions to stall in late 2016, and that continued into the first quarter of 2017.

Transactions were down 23% year-over-year as of March 31, according to Real Capital Analytics data. Commercial real estate sales have now fallen at double-digit rates for two consecutive quarters.

Expectations of lowered returns also have been realized. Real estate returned 1.77% for the quarter ended March 31, down from 2.11% for the prior quarter, according to preliminary NCREIF NFI-ODCE gross return data.

At the same time, investors committed less capital to real estate funds, said Allison Yager, a partner and global leader of real estate in the Atlanta office of Mercer's investments business.

The 162 investment managers that responded to the NCREIF-INREV-ANREV Global Capital Raising Survey Report 2017 reported lower capital raising for North America, to $33.3 billion in 2016 from $37.7 billion in 2015.

Theodore Koenig, president and CEO of Chicago-based middle-market private debt manager Monroe Capital LLC, had predicted the retail sector would have a rough time in 2017. So far, he's been proven right.

“It's a much tougher environment for retail today, and I expect that we will see the effect of those changes in the REIT space,” Mr. Koenig said. “There have already been nine significant retail bankruptcies in the retail space in 2017. There were nine in all of 2016.”

Vacancy rates at malls will rise, Mr. Koenig said, which will continue to lead mall owners to make changes to their properties including replacing department stores retailers with more service-oriented tenants such as restaurants and health clubs, he said.

Preliminary indications for the private equity and private credit markets are encouraging, although questions persist.

Monroe Capital's Mr. Koenig had expected corporate tax cuts and spending cuts promised by Mr. Trump would extend the credit cycle.

Under Mr. Trump's tax proposal, released April 26, the corporate tax rate would be cut to 15% from 35%.

In the first quarter, Monroe Capital had a 15% increase in the new business opportunities it evaluated from the year-earlier quarter, Mr. Koenig said. New financings at Monroe Capital were up almost 6% in the first quarter, compared to the first quarter of last year.

“The demand is up. The deals are more highly leveraged and multiples are up ... which would happen if the credit cycle were extended,” Mr. Koenig said. “Private equity managers are being more aggressive in their structures.”

However, it is too early to tell the impact of the administration's policies on the energy sector. Mr. Trump has eased regulations on clean water and tax incentives for producers of wind, solar and electric power. This created an even playing field for oil and gas companies, which are looking better as investments, Mr. Koenig said.

“Without the tax incentives, water, solar and electric power are going to have a hard time competing with more traditional sources of energy,” he said.

Meanwhile, a big push to boost defense spending is causing a lot private equity and private debt capital to flow into the cybersecurity sector.

“Cybersecurity is hot for dealmaking,” Mr. Koenig said.

Although Mr. Clayton still hasn't yet been approved by the full Senate as chairman of the SEC, interim Chairman Michael Piwowar has opened comment on whether the commission should do a full review of Reg NMS, which governs rules such as best execution. Such a review was expected under the Trump administration. The comment period is ongoing and no end date has been set.

Despite Mr. Trump's call to change or rescind the Dodd-Frank Wall Street Reform and Consumer Protection Act, particularly the capital requirements for fixed-income inventory, there have been no changes yet, and it is up in the air as to whether that rule would be revoked. Traders in bonds are still working under Dodd-Frank rules.

There also has been no change in the trend toward U.S.-EU rule equivalence. The latest example was approval by the SEC of T+2 settlement rules on March 22 to follow the move by the European Union in 2014.