When Donald Trump secured his victory in the US presidential election, Wall Street executives were filled with optimism, believing they would witness the “art of the deal” firsthand. However, the reality has proven far less favorable, resembling more of a chaotic Jackson Pollock painting than the refined touch of a Rembrandt. In particular, asset managers have faced significant setbacks, with the collective market capitalization of major investment firms such as Blackstone, Apollo, KKR, Carlyle, TPG, Ares, and Blue Owl plummeting nearly 40 percent. This decline translates into a staggering $200 billion loss from their peak following the election.

This downturn can be largely attributed to the anticipated mergers and acquisitions (M&A) boom that never materialized. In the immediate aftermath of Trump’s election victory last November, shares of investment banks and private capital managers surged, fueled by the expectation that the new administration would usher in a wave of deregulation beneficial to business. High-profile Wall Street figures, including Blackstone's CEO Stephen Schwarzman and Goldman Sachs' David Solomon, anticipated this wave of M&A activity with great enthusiasm, believing their fortunes were poised to soar.

However, contrary to those expectations, financial titans are now grappling with a global trade war that is almost unprecedented in its scope and implications. Increased uncertainty in the market has led to a significant decline in the number of deals, fundraisings, and financings. This downturn directly impacts transaction fees, management fees, and incentive profits—critical components that underpin the revenue and earnings growth of banks and asset management firms. The recent market downturn has further exacerbated these challenges, prompting analysts at Morgan Stanley to extend their projections for “normalized” capital markets from 2026 to as late as 2028.

Yet, the decline in M&A activity is just one facet of a much larger concern. The nationalistic policies emerging from the Trump administration threaten to undermine America’s historical dominance in the global financial landscape. For decades, U.S. financial institutions have led the market, benefiting from a consistent trade deficit that reached $900 billion in 2024. This deficit has fostered a persistent demand for U.S. dollars, which in turn has bolstered the United States-centric financial services industry. Between 1990 and 2020, while American manufacturing jobs dwindled from 18 million to 13 million, jobs in financial services grew from 5 million to 7 million.

Should trade barriers reduce the U.S. trade deficit, the influx of dollars into the domestic economy could dwindle significantly. In a world increasingly characterized by inward-looking economic policies, sovereign wealth funds from Asia, Scandinavia, and the Middle East may become more hesitant to transfer their assets to American financial hubs. This concern is exacerbated by fears that foreign governments, particularly in countries suffering from tariff impacts, may develop animosity toward U.S.-based funds acquiring their national resources.

In the aftermath of Trump’s election, financial advisory and private capital firms were trading at valuations between 30 to 40 times their projected earnings for 2025. Many of these firms expanded their workforce significantly over the previous five years, operating under the assumption that they would experience monumental growth in both transactions and managed funds. A prime example of this rapid growth is Blue Owl, a private credit firm that skyrocketed from relative obscurity to a market capitalization of $40 billion by January.

America has a remarkable ability to cultivate firms like Blue Owl, but the potential for these companies to flourish may be severely constrained if the world transitions into a series of closed economies.

For further inquiries, contact: sujeet.indap@ft.com