Trump’s return will transform US domestic policy and reverberate through the international system by up-ending trade, investment, and geopolitical risk patterns. These changes will affect private capital investors, including those operating in small-state international finance centres (IFCs), who must gauge their response.

They also provide the headline for five significant trends — Trump, Tariffs, Tax, Tech, and Trade – poised to take their place at the centre of the global investment stage through 2025 and beyond.

Trump: ‘America First’ And The Reconfiguring of Global Risk

The return of Donald Trump to the Presidency will herald a transformative pivot to a shifted global environment, now more nationalistic and protectionist. Trump’s “America First” agenda – built upon the principles of rewriting trade deals, breaking away from international accords and placing U.S. interests ahead of multilateralism – will bring geopolitical risks and opportunities back to the forefront of the 2025 agenda.

Trump’s presidency will make for a choppier investment environment for private capital investors. In his first term, we witnessed a transactional model of global relations manifested in trade wars, diplomatic tensions and bouts of financial volatility. If, in 2025, his policies are still focused on limiting foreign competition and combating global interdependence, investors should remain on guard for ripple effects.

On the upside, this political shift might be a boon for small-state IFCs. Countries with favourable tax policies, regulatory flexibility, and a track record of attracting capital in times of political instability will become ever more attractive to investors seeking safe harbours or alternative pathways into markets that are heavily impacted by shifts in U.S. policy.

Tariffs: We Are Still In The Age of Protectionism And Supply Chain Shocks

One of Trump’s most consequential legacies from his first term was his aggressive push to raise tariffs, including in his trade war with China. When he returns to office in 2025, tariffs will likely remain a significant tool of U.S. foreign policy. The immediate fallout will wash through international commerce, spanning matters as diverse as EVs, cell phones and agriculture, as Trump pursues more protectionist policies while limiting American reliance on foreign suppliers.

These developments will be a double-edged sword for small-state IFCs. Tariffs can disrupt global supply chains, rendering certain regions or industries less competitive and reorienting trade patterns. They can also boost inflation and prices in the short term, negatively impacting the cost of living. Still, investors could see new opportunities in jurisdictions playing a role as alternative manufacturing hubs or trade gateways. If manufacturing relocates, the investment that supports it will flow to the U.S., potentially via IFC conduits. Southeast Asian or African countries might also benefit as American companies seek to lessen their exposure to steep Chinese tariffs.

However, the spillover effects of tariffs – especially if they’re directed at a vital sector, like technology – could include market turbulence and price hikes. Private capital investors must brace for supply chain disruptions in sectors reliant on Chinese or other global suppliers and diversify their portfolios to minimise the fallout. Companies examining ways to move production away from tariff-heavy markets for their cost-effectiveness and efficiency will be in demand. At the same time, small-state IFCs with strong capital management and deployment capabilities can play a key role in meeting the growing demand for new investment capital flows as production shifts to new locations.

Tax: The New Global Tax Order And Its Impact On Investment Flows

Seismic change is underway on the global tax front, and Trump’s return will almost certainly challenge this process. Although the OECD’s promotion of a global minimum tax rate of 15% has been a strong theme over the last several years, Trump’s administration will likely re-examine the subject, particularly as he strives to keep U.S. businesses competitive internationally through a two-tier corporation tax system. Domestic ‘Made in America’ firms could benefit from a 15% CIT whilst foreign players may still have to bear the current 21% rate.

For small-state IFCs, Trump’s return may elevate interest in jurisdictions that offer favourable tax regimes for multinational corporations, low or no tax rates on capital gains, and/or more benign tax-neutral regimes. Small-state IFCs are well placed to offer both a capital-friendly tax environment and a robust and rich financial infrastructure to attract and channel capital flows from investors.

But Trump’s approach also risks forcing the U.S. into renegotiating tax treaties and pursuing more aggressive tax policies domestically. The great unknown is how markets will react to a perpetuation of the Tax Cuts and Jobs Act and a raft of new tax-cutting measures, adding to the steep tax cuts from the first Trump administration due to run out in 2025.

Much of the cuts, at least initially, will be funded by increased borrowing. Will the bond markets be prepared to bankroll the additional borrowing needed, given that the U.S. debt servicing is already set to exceed 6% of GDP? Interest payments will exceed military spending for the first time in U.S. history, and this will surely be a test for the mighty dollar.

Tech-tonics: Jump-starting Investment In Technology Will Raise Geopolitical Friction

With technology increasingly shaping the global economy, a China vs U.S. tech standoff will almost surely speed up the trend toward a technological decoupling of the two major global economies, one that will probably be most pronounced for China. The technological ‘Cold War’ that started during Trump’s first term — focused on AI, 5G and semiconductors — will continue through 2025, altering the flow of global investment and the nature of innovation ecosystems.

The changes could create a unique opportunity for private investors to ride the tech-driven growth wave, especially in the future mega-sectors such as artificial intelligence, quantum computing, biotech and its supporting infrastructure. The geopolitical and market risks of tech investments will also increase. Corporate adoption still lags personal consumption (75% of all ChatGPT subscribers are personal) and investment to date of $1.5trn shows lots of promise but little by way of tangible near-term profits. AI remains an exciting but nascent and rapidly evolving technology that still has, for many, to prove its real-world impact.

Among the things to keep an eye on will be the rise of tech startups and venture capital in smaller-state IFCs. A proactive approach by jurisdictions such as Singapore and the Cayman Islands has made them attractive destinations for fintech, blockchain and other technologies. These smaller centres could strengthen their positions as key players in the global tech investment firmament amid geopolitical tensions.

Trade: Increasingly Regional, National And Protectionist

Global trade winds will blow differently in 2025, beset as they are by fractured trading blocs and regional alignments. Bilateral trade deals – instead of multilateral agreements – may take precedence, increasing export tensions between the West and other powers, including China and Russia. In this environment, the future of the WTO is not assured.

Disruption may open new avenues for small-state IFCs to play an intermediation role in leveraging regional trade agreements. Traditional financial systems might find it challenging to meet the needs of the new economy. The rise of digital trading hubs in smaller IFCs will be a boon for investors as these hubs are gaining traction in regions such as southeast ASIA, Africa and the Middle East, where emerging markets are making inroads into conventional trade routes.

2025 will also see further evolution in trade finance. The shift towards digitised trade and persistent political friction will drive demand for more secure, transparent trade finance solutions, which small-state IFCs are well-placed to offer. The remainder of this decade will be critical for the embedding and establishment of all things crypto, with the tailwinds of a supportive U.S. president and a more benign regulatory environment. Understanding how these new trade routes and financial instruments will develop will be a key to accessing growth areas in an increasingly fragmented global marketplace for private capital investors.

Wrap-Up: The Times They Are A-Changin’

2025 will be a year of significant change in global events, trade and investment. The re-entry of Donald Trump into the White House will bring back his brand of nationalism, protectionism and a more transactional approach to foreign relations, all of which will have significant implications for the shape of investment markets. Private capital investors, including those operating through small-state IFCs, will have to alter their strategies in a world redefined by geopolitical risk, technological disruption, and new tax and trade paradigms.

Small-state IFCs offer a unique blend of regulatory flexibility, tax advantages, relative political stability, and investment potential. These make them an attractive option for investors looking for alternatives to larger, more volatile markets. Still, private capital investors will need to know how to prosper in an altered world of Trump, Tariffs, Tax, ‘Tech-tonics’ and Trade.

Adaptability, foresight and strategic diversification will be the keys to success in 2025.

By Geoff Cook, chair of Mourant Consulting

The fund is aimed at institutional investors, Discretionary Fund Managers, IFAs and advised sophisticated individual investors, and will primarily consist of UK Government bonds and large-cap equity index options, which provide significant scalability and strong liquidity. It aims to deliver 7% to 10%+ per annum and positive returns in all markets except for a sustained equity market fall (generally more than 35%), over a period of at least six years.

The fund is the first to be launched by the new Liquid Alternatives Team established by Downing. Collectively, the team has over 125 years of experience and sector knowledge, and includes Tony Stenning (pictured), who held senior roles at BlackRock and most recently was CEO of Atlantic House Group; Russell Catley, founder and also a former CEO of Atlantic House Group; Huw Price, a former Executive Director at Santander Asset Management, and Paul Adams, former Head of Cash Equities and Derivatives Sales, Royal Bank of Canada.

The fund offers investors a compelling building block for multi-asset portfolios, aiming to add consistent and predictable returns, typically secured with a portfolio of UK Government bonds. The unique proposition includes a hybrid approach of using systematic derivative strategies and active management, combining liquid investments with predictable returns, and an equity like risk profile.
Investment strategy: Maximising the probability of delivering predictable defined returns across the economic cycle.

– Systematic Liquid Derivatives: Systematic, derivative strategies optimise the equity risk-return profile. The Fund uses rules-based derivative strategies linked to the most liquid, large-cap global equity indices (i.e. FTSE100, S&P500) with the aim of harvesting well-proven consistent returns across a wide corridor of market conditions.
– Strong security: The Fund will hold a high-quality portfolio of assets as secure collateral – typically UK Government bonds.
– Active benefits: At times, rules-based, passive derivative strategies can underperform when markets move strongly – this is when specialist active management can add incremental gains by monitoring and monetising positions and applying active risk management.

Key benefits

– Increased consistency and predictability of returns: Positive returns in all markets except for a sustained equity market fall of more than 35% over at least six years.
– Diversification of risk: The Fund’s risk components are diversified across large, liquid equity indices, observation levels and counterparties. Secured with high-quality assets – typically UK Government bonds.
– Active management: Our experienced team will actively manage the Fund and its investments to optimise risk and reward for investors.

Russell Catley, head of retail, Liquid Alternatives at Downing, said: “Put simply, we focus your investment risk on the probability of receiving the returns you need, not those you don’t. We target the highest probability of delivering 7% to 10%+ per annum with active management adding material incremental gains. We believe that we are building the next evolution of the proven success of Defined Returns funds.

The Downing team is seeing strong demand from clients looking for alternatives to large-cap equity funds which are becoming concentrated in technology stocks, or alternatives to UK equity income funds and illiquid alternatives.”

Tony Stenning, head of Liquid Alternatives at Downing, said: “The launch of our Active Defined Return Assets Fund is a significant milestone in the ambitious build-out of our new Liquid Alternatives strategies. It is a solution-focused fund that should deliver stable high single or low double-digit returns across a wide spectrum of equity market conditions, except for a persistent multi-year bear market. The Fund is designed to enhance balanced portfolios by providing consistent, predictable returns and is suitable for accumulation or drawdown.

“We aim to deliver a unique combination of proven systematic derivative strategies and specialist active management, and we are doing so at a very compelling fee level, below our closest competitors and in line with active ETFs.”

In light of this news, two Moody’s Ratings reports from 2024 speak to the opportunities this present to the private credit industry and also emerging risks.

Individual investors are increasingly driving growth in private markets, but this trend brings significant risks that need to be managed.

“Expanding into private wealth fundraising will be crucial for the industry’s continued growth. Expansion of retail private debt asset under management (AUM) has accelerated in recent years and, although still proportionally small at less than 20% of total private debt AUM, it is growing at a faster pace than institutional AUM. We expect this trend to continue, with other private asset classes likely to follow a similar pattern,” wrote the author Alexandra Aspioti, a Vice President of the private credit team of Moody’s Ratings.

“As competition among asset managers intensifies, potentially leading to lower returns, managers might increase their risk appetite. For example, private credit lenders might seek to extend loans to riskier market segments, which could result in increased losses over time. The historical returns reported by private equity and private credit funds may not serve as reliable indicators of future performance. As market conditions continue to tighten, private equity funds have encountered difficulties exiting investments. Meanwhile, private credit, though benefiting from higher rates, will likely face challenges because of mounting pressure on underlying companies. Although more sophisticated investors typically understand such risks, the more vulnerable retail segment will require further education,” she added.

What’s happening:
• Growth: Private markets are becoming more accessible to individual investors, supported by innovation and technology.
• Benefits: These investors are attracted to private assets for their inflation resistance, lower volatility, and higher yields compared to public markets.
• Risks: The influx of retail capital introduces operational complexities and potential risks if not managed properly.

Why it matters:
• For Managers: Alternative asset managers are diversifying their fundraising sources as institutional capital flows slow down. But opening these assets to a broader set of investors introduces significant operational complexities for alternative asset managers. Providers of private market funds will need to invest heavily in resources and will face a new set of risks. These risks stem from the inherently complex nature of selling financial products to individual investors.
• For Investors: Individual investors are seeking better returns and diversification, but they need to be aware of the complexities and risks involved.
• Regulation: Increased regulation is anticipated to protect investors and ensure market stability.

The firm found two out of three institutional investors (67%) believe the level of volatility in markets will rise this year, with 6% predicting a dramatic increase.

Carne Group commissioned Pureprofile to interview 201 investors working for pension funds, family offices, wealth managers, insurance asset managers and consultants across the UK and continental Europe. Those taking part had a total of $1.7trn under management and were spoken to in December 2023 or January 2024.

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The researchers also found that close to nine in 10 investors (88%) said they believe their organisation’s appetite for risk will be higher this year, with 11% saying it will be much higher.

Among pension funds alone, 92% expect risk appetite to be higher, with 6% expecting it to be much higher, while for family offices the corresponding figures are 83% and 20% respectively.

Around 86% of insurance asset managers expect an increased risk appetite with 6% said it will be much higher. For wealth managers the figures were 85% and 14% respectively and for consultants they were 96% and 13%.

In terms of which alternative asset classes are most appealing, around 65% of those interviewed chose hedge funds as among the top three private asset classes for growth in inflows, while 57% selected venture capital and 56% said private equity.

The full findings:

John Donohoe, CEO at Carne Group, said: “Sustained stockmarket volatility and investors seeking higher returns has driven increased interest in alternative asset classes which generally show lower levels of correlation to short term price movements, which is important not only for diversification but also for regulatory purposes.

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“The growing focus on alternatives is not a short-term move either, with institutional investors predicting strong but selective growth in inflows to alternatives over the next five years. One area we are seeing a particular increase in inflows is private debt, and our research suggests this is likely to continue.”

The Future Generations VCT was launched in 2022 and aims to back businesses that have ‘the power to transform the world for the better’.

The VCT is managed by Simon King, who has over 10 years’ experience in the industry and is a partner in Octopus Ventures.

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It offers investors the opportunity to access a portfolio of early-stage companies which are aligned with three core investment themes. Namely, building a sustainable planet, empowering people and revitalising healthcare. The team invests the top 10-15 opportunities it identifies each year.

Octopus donates 10% of the annual management charge to Octopus Giving, its charitable foundation.

Since inception, the VCT has already raised more than £45m and invested in 25 companies across all three themes.

King said: “We live in a changing world. But we believe that a new world is possible – one where the most successful companies are a force for good. The entrepreneurs we back are reimagining how whole industries behave.

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“We’re backing teams who are eliminating carbon footprints, creating cancer vaccines, building the next phase of the internet and charting a greener approach to space travel, to name just a few.

“By 2030 it is the aim of Octopus to have invested £10bn into the industries that are bringing about a positive change in the world and we firmly believe that the Future Generations VCT will be at the forefront of this mission,” he added.