Masters of the Universe survey Trump’s train wreck

Welcome to a special edition of Due Diligence, where we’re assessing how Donald Trump’s biting tariffs are pushing the stock market lower while the economy teeters on a recession. Below, we dig into what the fallout means for all corners of Wall Street. But before we get into it . . .  

One big job move to start: Mark Wiedman, a former top executive at BlackRock, is joining US bank PNC as its president, in a bet the regional lender can bulk up through acquisitions and better compete with industry behemoths such as JPMorgan Chase.

In today’s newsletter:

• Wall Street titans give their 2 cents

• How will the fallout affect private capital?

• What does this mean for deals, IPOs and hedge funds?

‘Bullshit’: Wall Street titans on the tariff fallout

After taking the weekend to digest how exactly the S&P 500 shed $5.4tn throughout last Thursday and Friday, those on Wall Street started to point fingers on Monday.

Some of the country’s wealthiest Republican donors spoke out against Donald Trump’s decision and approach to levelling high tariffs across much of the world.

Home Depot co-founder Ken Langone attacked the tariffs for being too high and implemented too quickly, adding that the president was “poorly advised” and the 46 per cent rate on Vietnam was “bullshit”. 

He wasn’t the only one. 

Stanley Druckenmiller, the famed macro investor who’s a mentor to Treasury secretary Scott Bessent, wrote his fourth-ever post on X to set the record straight on where he stood. 

“I do not support tariffs exceeding 10%,” he said, responding to an account that had reposted an interview he had done months earlier on CNBC.

And, of course, hedge fund manager Bill Ackman posted on X through it all, wavering between harsh digs — “a major policy error” — to walk-backs — “it was unfair of me to criticise Howard Lutnick”, the commerce secretary. 

Wilbur Ross, Trump’s commerce secretary during his first term, said that while businesses and investors could deal with good news and bad news, the in-between state was simply purgatory. 

“Fear of the unknown is the worst for people and we are in a period of extreme fear of the unknown,” he said. 

Meanwhile, some investors were convinced the White House would soon reverse course to avoid a full-blown crash. “I’m just assuming that Trump’s not suicidal, and that he will relent,” said one hedge fund manager. 

“Through all this there could be a financial institution that goes down and snowballs into something that nobody wants to see — all because you’re posturing to get better terms on a deal.”

‘Liberation day’ causes pain for private equity

Ordinarily, private equity is a refuge from market volatility. 

Groups such as Blackstone, Apollo and KKR have assets locked up for a decade, they mark their assets quarterly and are under no compulsion to sell during market panics.

But DD has documented over the past three years why this is one of the most unusual markets ever — a time marked by risky financial engineering, so-called continuation funds and other temporary fixes — that has left firms unusually exposed to Trump’s whims. 

The US president, backed by many PE billionaires, was supposed to be the industry’s big panacea, unleashing a 1980s-like deal boom. But he has proven anything but.

Instead, tanking public markets set the stage for an industry shakeout. Investors in PE funds are seeing ways to dump their illiquid holdings and could soon accept big discounts to exit long-held bets. It signals that the buyout industry machine may be spinning in reverse. 

Shares of US private equity groups fell by between 15 per cent and more than 20 per cent late last week. In Europe, both EQT and CVC have seen their stocks pummelled too.

Weak deal markets mean it will be hard for these firms to sell assets and earn lucrative performance fees. Investors could pull back their commitments to new funds causing industry assets to contract further.

Pain may also be in store for deals that were agreed right before “liberation day.”

Last month, Clearlake Capital struck two $5bn-plus takeovers — the acquisition of Warburg Pincus-owned ModMed and Dun & Bradstreet. Sycamore Partners also reached a $24bn deal to take Walgreens private. 

These deals will be a good bellwether on how the PE storm is blowing.

Trumponomics could spoil the private credit party

Trump’s trade war has major ramifications for the booming credit markets. Bankers already have shelved some buyout financings and DD senses they’ll be extra judicious on new commitments. 

It’s a big test for private credit’s dominant players — the “golden age” of private credit has yet to face a prolonged recession. 

But Moody’s Ratings is warning about a looming jump in defaults as a result of the trade war.

And BlackRock chief executive Larry Fink said on Monday the US economy was weakening by the second, meaning pressure is mounting on highly indebted companies and their lenders.

An uptick in non-performing loans could be on the horizon. 

Loan prices have slid below 95 cents on the dollar, while spreads on single-B-rated high-yield debt — a rating usually targeted by private equity firms for their buyouts — have almost doubled, according to closely followed indices. 

The likes of Ares, Apollo and Blue Owl have seen their shares hammered, in sympathy with PE shops.

The question is if those firms will be able to step in and take advantage of the widening spreads, as they did in the immediate aftermath of the coronavirus pandemic, or if their existing loan books will suffer.

How long will deals be put on ice?

The much-heralded “Trump bump” for dealmakers has turned into a downturn.

As tariff turmoil roils markets, initial public offerings have been put on ice and all the excitement over a pick-up in dealmaking has turned all but anaemic. 

Michael Deyong, the co-head of White & Case’s global mergers and acquisitions group, said the uncertainty was “causing buyers to really pump the brakes”. 

“It’s unlikely it’ll just be a light switch where everything’s off or everything’s on,” he added. “It’s likely going to play out over several months and in different geographies at different times.”

Equity capital markets bankers had been eyeing April as an IPO window, but within days that window slammed shut. 

Klarna, eToro and StubHub had all been planning to launch investor roadshows in the weeks ahead after publicly filing with regulators; those plans are now on pause.

Medical equipment giant Medline, which could fetch a $50bn valuation, also delayed its IPO plans. It’s a bad development for a closely watched deal the FT anointed as a harbinger for the health of Wall Street.

Can hedge funds withstand the whiplash? 

Where could markets break? DD’s always keen to keep an eye on hedge funds, which increasingly are dominated by ultra-leveraged pod shops crowded into similar trades. 

The FT reported on Friday that hedge funds had been hit with the biggest margin calls last week since the pandemic shut down huge parts of the economy.

Banks asked their hedge fund clients to stump up more money as security for their loans because the value of their holdings had tumbled. That’s never a good sign.

Last Thursday was also the worst day of performance for long-short equity funds since Morgan Stanley began tracking the data in 2016, according to a weekly report by the bank’s prime brokerage division.

“If you’re working at Millennium or Citadel, and you’ve gone through your guardrails, you’re out,” said one hedge fund manager at another firm, referring to the strict loss limits imposed on portfolio managers at the biggest multi-strategy funds.

Job moves

• Bank of England governor Andrew Bailey has been appointed chair of the Financial Stability Board. He will hold the role for three years alongside his position atop the central bank. 

• Jefferies has hired Gabriel Gruber as global co-head of chemicals investment banking. He joins from Barclays.

• Comcast has appointed Jon Gieselman to a newly created role of chief growth officer for its residential domestic connectivity businesses. He previously worked at Expedia Group.

Smart reads

Car wars China’s carmakers are engaged in a brutal fight for dominance, writes the FT, with a new car model released every two days on average.

Tariff planning Companies are getting creative as they search for ways to soften the blow of US import tariffs, the FT reports.

Airline take-off Former M&A banker turned Virgin Atlantic chief executive Shai Weiss spoke to the FT about bringing the airline back to profit, fighting cancer and playing dice with Richard Branson.

News round-up

Bill Ackman’s main fund drops 15% this year as trade war hits holdings (FT)

EU drops bourbon, wine and dairy products from tariffs list against US (FT)

New Mountain buys stake in healthcare software provider Office Ally (FT)

A&O Shearman unveils AI tool to speed up senior legal work (FT)

UK to dilute rules for smaller private equity firms and hedge funds (FT)

Woodside sells $5.7bn stake in Louisiana LNG to Stonepeak (FT)

JPMorgan chief Jamie Dimon warns trade war risks recession and higher prices (FT)

Jes Staley awaits judgment in courtroom battle over ‘Uncle Jeffrey’ Epstein (FT)