How Trump can help hedge funds prosper

The US hedge fund industry was reportedly euphoric following Donald Trump’s victory in the November 2024 presidential election.¹ The industry believes a second Trump administration will provide a much more positive regulatory framework for hedge funds, a view seemingly confirmed by Trump’s nomination of hedge-fund veteran Scott Bessent as Treasury secretary and by key appointments to the SEC.

Moreover, Trump’s victory prompted sudden moves across asset classes, provoking fresh volatility for the biggest macro traders on Wall Street and bolstering profits across the industry – which, according to Bloomberg, was already on course to deliver its strongest returns in at least four years.² Hedge funds were certainly in a positive mood when Trump was inaugurated on 20 January, recording their highest levels of borrowing since 2010, while betting the dollar would continue to rise.³

A positive approach

The Biden administration had adopted a confrontational approach to hedge funds, led by the chair of the SEC, Gary Gensler, who was appointed by President Biden. Gensler stepped down from that role on the day of Trump’s inauguration, leaving Republicans in charge of the SEC. Lobbyists for the hedge-fund industry had sent a wish list to the SEC even before Biden left office, asking for repeals and delays to much of the regulator’s ‘hard-hitting’ agenda on industry transparency, according to Reuters.⁴

The news agency added that the rollbacks would add a six-month delay to disclosure requirements, ‘including those which would reveal to regulators more about what short bets funds have against stocks, and their rate of change’. The letter also asked for a similar delay on a separate set of rules that require hedge funds to tell the regulator their size, what assets they have and some detail on their leverage levels.

The SEC adopted the new rules in 2023. They aimed ‘to shine a light on private equity and hedge fund expenses and fees, in a sweeping overhaul aimed at an industry long criticised for its opacity’, said Reuters.

Hedge-fund-friendly appointees

President Trump has chosen Mark Uyeda to act as temporary chair of the SEC while the agency awaits the Senate’s confirmation of the president’s pick for the permanent role, Paul Atkins. Nearly all the senior SEC legal officials that worked under Gensler, including those in the enforcement division and the general counsel’s office, are now absent from their posts. Uyeda, a Republican, has been critical of Gensler’s aggressive stance on cryptocurrency and private markets.

Atkins, a former SEC commissioner, voted several times against punishing big companies and was extremely critical of the agency’s enforcement process during his 2002–08 tenure at the agency. Atkins argued that corporate fines unfairly penalised shareholders and that the SEC should focus on individual fraudsters. Since leaving the SEC, Atkins has made the case against too much market regulation and increased bank lending.⁵

Bessent, meanwhile, is an advocate for financial deregulation. As Treasury secretary, he will have wide oversight of tax policy, public debt, international finance and sanctions. Bessent has spent his career in finance, working for George Soros and the noted short-seller Jim Chanos, as well as running his own hedge fund, Key Square Group.

Morgan Stanley certainly believes that the Trump administration will prove positive for US hedge funds. In its 2025 Hedge Fund Outlook, released in January, the bank said that the presidential election was ushering in ‘a new wave of US Exceptionalism’, with hedge funds likely to be buoyed by associated themes such as the ongoing artificial intelligence (AI) frenzy, monetary-policy easing and the Trump administration’s pro-business, deregulation agenda, which should prove highly supportive to US equities.⁶

Global wind of change

The Trump administration could also prove positive for hedge funds globally. Regulatory pressures could well abate worldwide as Trump adopts a much more positive regulatory approach than was the case under President Biden. Other parts of the globe are likely to follow the US’s lead. That reflects global competition for hedge funds and their investment flows.

Jurisdictions will have to consider whether to place themselves at a competitive disadvantage by clamping down on activities. That is particularly true for the European Union, which is struggling to match US economic growth rates. Attracting new financing to revitalise the European economy is a priority for European leaders, which suggests they will not wish to place financial institutions in the EU at a regulatory disadvantage. Hedge funds account for a large and growing share of EU government debt sales and provide a source of much-needed capital. Reuters, citing figures from Tradeweb, reports that hedge funds accounted for a record 55% of trading volume for European government bonds in 2023, up from 36% in 2020, making them the dominant players in the sector for the first time.⁷

In conclusion, while it is difficult to be specific about the changes the Trump administration will make to the regulatory burden, it is clear from the comments of senior officials that the US government will take a much more positive approach to the financial services sector in general and hedge funds in particular. In addition, the economic stars are aligning favourably for the industry, as we explain in another insight .

Sources

¹ https://www.bloomberg.com/news/articles/2024-12-02/biggest-hedge-funds-make-the-most-of-the-trump-trade-in-november
² https://www.bloomberg.com/news/articles/2024-12-02/biggest-hedge-funds-make-the-most-of-the-trump-trade-in-november
³ https://www.reuters.com/markets/us/hedge-funds-ante-up-big-bets-kick-off-trumps-second-term-2025-01-21/
⁴ https://www.reuters.com/markets/us/hedge-fund-industry-asks-day-one-reprieve-sec-rules-2025-01-21/
⁵ https://www.reuters.com/markets/us/trumps-sec-pick-likely-give-wall-street-easier-enforcement-ride-2025-01-07/
⁶ https://internationalbanker.com/brokerage/a-favourable-outlook-looms-for-hedge-funds-in-2025/
⁷ https://www.reuters.com/markets/rates-bonds/hedge-funds-shake-up-euro-zones-10-trillion-government-bond-market-2024-03-19/