Political and Economic Uncertainty in the Asset Management Industry

By Nicsa posted 29 days ago

  

Uncertainty has been the name of the game in 2020 — and that trend that will likely continue as we head into 2021. But with uncertainty comes opportunities for competitive differentiation. To that end, panelists gathered to present a bird's-eye view of political and economic trends affecting the industry and during the final day of Nicsa’s virtual GMM 2020 event.

 

Dave Parks, Executive Director at EY, moderated the event, which also featured experts from AGF Investments and Citi. Parks kicked things off with the question on everyone’s mind: What will be the outcome of the 2020 United States presidential election?

 

“As of today, Vice President Biden is ahead in the polls, and I would project him to win,” said Candida 'Candi' Wolff, Executive Vice President, Global Government Affairs at Citi. “If Biden wins the White House, the House will not be in play. Democrats will maintain control of the House, and it’s quite possible that Democrats could pick up some seats.”

 

At this juncture, Wolff said that if Vice President Biden wins, it’s likely that the Senate will flip Democratic due to the down-ballot effect. “If Biden has a really good night, I think we are going to be in a position where there will be even more seats picked up by Senate Democrats,” she said.

 

Greg Valliere, Chief U.S. Policy Strategist at AGF Investments, said investors tend to prefer a divided government. “I think if we have a blue wave, it could be nerve-wracking for many investors,” he said.

 

Assuming a Biden win, Valliere said Biden’s priorities will focus on improving international relations, undoing some of Trump’s regulatory measures, and issuing a stimulus coronavirus relief package.

 

“I would think that Biden would listen to economists like Jerome Powell who feel we really do need more stimulus,” he said. “Finally, I’m not persuaded he would go immediately into tax hikes. He may wait. He may feel the economy is too fragile and not want to antagonize the markets.”

 

Wolff agreed, adding that a Biden administration may turn to budget reconciliation as a way to pass tax changes.

 

“The reason I bring it up is the process takes some time to work through,” she said. “This pushes the tax debate, practically speaking, out into the summer because you have to create a bill, a vehicle, and a process by which you consider the taxes, or you have to change Senate rules, which also takes time.”

 

FISCAL POLICY

Valliere said most are oblivious to the Federal deficit, which he said is predicted to exceed $30 trillion by the middle of the decade.

 

“But I don’t worry about it — at least not now,” he said. “Jerome Powell has made it very clear that interest rates will stay at about zero. The Fed funds rate will stay at zero, and because of that, we can handle debt-servicing costs for another two, three, four years. We can’t continue along this path forever. At some point, there will have to be some belt-tightening or higher taxes, or maybe we’ll finally look at entitlements.”

 

Wolff said politically, we will start to see more “deficit hawks” emerge, though their voices have been quieted in recent times due to coronavirus.

 

“It’s a way to block and tackle what will be viewed as big-spending programs that might be coming from Democrats,” she said. “I think you’ll see concerns about deficit being used politically, garnering discussion. It may not change the dynamics over the next few years. I’ll be interested in whether we see politicians in 2022 or 2024 take on concerns about where the deficits are and what we’re doing to do about it.”

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the Nicsa panel, they do not necessarily reflect the views of Nicsa or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.

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