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Devising niche investment strategies: How Stewards meets the unique needs of investors
May 29, 2025Stewards appointed to raise capital for Riva Residenze, the first yacht-branded residences in the world
May 9, 2025Devising niche investment strategies: How Stewards meets the unique needs of investors
May 29, 2025Trump 2.0: A Double-Edged Sword for Private Credit
16 May 2025
Donald Trump's potential second-term economic agenda continues to present a complex landscape of opportunities and risks for private credit markets. While deregulation and tax cuts could still stimulate deal-making, the specter of tariff escalations and persistent monetary policy uncertainty looms large, demanding a nuanced and agile approach from lenders. Success in this environment will hinge not only on effective capital deployment but also on a keen ability to anticipate and navigate the shifting tides of economic policy and global events.
Deregulation: Fueling Growth or Inflating Risk?
With Trump's return to the White House, deregulation is once again a central policy focus, shaping key changes across various industries. His first term witnessed significant rollbacks in financial regulations, and his second term is poised to accelerate this trend.
On the surface, this presents a mixed bag for private credit lenders. Fewer compliance burdens, quicker deal-making, and potentially greater access to markets vacated by traditional banks offer enticing prospects. Mid-sized companies, particularly in capital-intensive sectors like energy and manufacturing, stand to benefit significantly from easier lending conditions, with private credit playing a crucial role in facilitating their expansion. However, this deregulation may also erode lending standards, increasing the likelihood of mispriced risk. A looser regulatory environment tends to fuel speculative borrowing, which could result in higher default rates and spread volatility if macroeconomic conditions deteriorate.
Bottom Line: While deregulation can undoubtedly spark new opportunities for private credit, lenders must exercise caution, balancing aggressive growth ambitions with disciplined underwriting practices.
Tax Cuts: Short-Term Boost, Long-Term Burden?
The administration’s proposal to extend the 2017 tax cuts, estimated to add $5 trillion to the federal deficit over the next decade, presents both opportunities and challenges for private credit lenders. In the near term, lower corporate taxes and potential wage relief may boost business cash flows, enhancing debt service capacity and fueling increased borrowing and investment. This could create favorable conditions for private credit deployment.
However, the long-term risks are more complex. A rising federal deficit may push interest rates higher as the government competes for capital, increasing borrowing costs economy-wide. If the economy overheats, the Federal Reserve could be forced to tighten monetary policy, constraining liquidity and raising the cost of capital.
Bottom Line: While extended tax cuts may support lending growth in the short run, they could also inflate asset values and credit risk. Lenders should remain disciplined, avoiding structures that depend on sustained economic expansion and persistently low rates.
Tariffs: Navigating a Minefield of Uncertainty
Trump’s potential reinstatement of broad tariffs carries significant economic implications, with direct consequences for private credit markets. While intended to curb imports, boost domestic manufacturing, and narrow the trade deficit, such policies would likely increase input costs for companies reliant on global supply chains.
For private credit lenders, this creates a dynamic mix of risk and opportunity. Reshoring efforts may spur demand for growth and capex financing in targeted U.S. sectors. Yet small and mid-sized businesses, especially those without pricing power, face margin compression and rising working capital needs. HSBC’s rollout of targeted credit products, such as TradePay, reflects a growing financing demand among tariff-impacted manufacturers. Meanwhile, looming tariff threats on European autos are leading some lenders to reassess risk exposure to the auto supply chain.
Bottom Line: Private lenders must be highly selective and nimble. Active monitoring of trade policy, sector-specific impacts, and borrower exposure is essential. Lending into U.S.-oriented sectors may be attractive, but inflationary pressures, supply chain disruptions, and trade-driven volatility demand rigorous portfolio stress testing and disciplined underwriting.
The Federal Reserve: Navigating Conflicting Pressures
Perhaps the most significant wildcard in this economic equation is Trump's relationship with the Federal Reserve. His first term was marked by public criticism of Fed policy and pressure to lower interest rates, and his second term has already seen renewed and intensified efforts to influence interest rate decisions.
If the Fed were to cut rates, private credit could experience a surge in demand, as lower borrowing costs would make financing more attractive for businesses. If the Fed cuts rates too aggressively only to reverse course in response to inflation, the resulting policy whiplash could create volatility that complicates risk pricing. Such instability could disrupt long-term lending strategies and create the very uncertainty that private credit markets typically seek to minimize.
Bottom Line: Private credit firms must be prepared for potentially significant interest rate volatility. Those with flexible, floating-rate structures and robust hedging strategies will be best positioned to weather unexpected and potentially rapid shifts in monetary policy.
Final Verdict: A High-Stakes Environment for Private Credit
Trump's potential second-term policies present a complex interplay of tailwinds and headwinds for private credit markets. While deregulation and tax cuts could expand lending opportunities and boost certain sectors, tariffs and monetary policy turbulence introduce significant potential for instability and increased risk.
The biggest winners in this environment will be the lenders who demonstrate a combination of opportunistic drive and unwavering discipline. This means capitalizing on growth opportunities where they arise but rigorously avoiding overexposure to fragile sectors or borrowers vulnerable to trade shocks, rising interest rates, or economic downturns. Private credit has proven its resilience in the face of uncertainty before, but with trade policy, interest rates, inflation, and economic cycles all in flux, this won't be a market for the reckless or unprepared.
For those willing to embrace the inherent risks with a well-informed and strategic approach, the rewards in this dynamic market could be substantial. However, for those caught on the wrong side of a volatile economy or exposed to unforeseen policy shifts, the consequences could be severe.
One thing is certain: With Trump's return to the White House, the private credit landscape promises to be both exciting and challenging.
by Katy Murless, CFA
Head of USA Operations
About Stewards Investment Capital
Stewards Investment Capital is a boutique investment advisory firm with a track record of over 25 years under the Stewards Group of Financial Companies. Strategically positioned in Mauritius, South Africa, and the USA, we tailor niche investment solutions to high-net-worth individuals and institutional investors.
Guided by a high-alpha approach and fuelled by a passion to be a catalyst for growth, our commitment to our investors is rooted in our mission to grow and nurture their wealth, building lasting fortunes and creating enduring legacies to achieve real freedom. This endeavour is powered by our team of passionate investment professionals, each contributing decades of experience and expertise to our firm.
For further information about Stewards Investment Capital, please visit stewardsinvestment.com/
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Email: suneetamotala@stewards.global, thestewards@stewards.global
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