Capital Markets Shrink Under Trump... Sovereign Wealth Funds Pulling Out of U.S.

FT Cites Private Equity Industry Sources
Chinese Sovereign Wealth Funds Halt New Investments Under Government Pressure
Canada and Europe Also Suspend Some Fund Allocations

Xi Jinping, President of China. Photo by Xinhua News Agency

It has been reported that major global investors, including China's sovereign wealth funds and Canadian pension funds, are either suspending new investments in U.S. private equity or moving to rebalance their portfolios. The tariff policies aggressively pushed by U.S. President Donald Trump against countries around the world have come back as a boomerang, increasing management uncertainty for American companies.

The Financial Times (FT), citing seven private equity industry insiders on the 21st (local time), reported that Chinese sovereign wealth funds, such as China Investment Corporation (CIC), have recently suspended new investments in U.S. private equity funds. This action was taken under pressure from the Chinese government and includes not only direct investments but also overseas funds that invest indirectly in U.S. companies.

The hardest hit are large U.S. private equity firms that lead the global infrastructure investment market, such as Blackstone, TPC Group, and Carlyle. CIC, along with the State Administration of Foreign Exchange (SAFE), has established itself as a key investor in major U.S. private equity firms. CIC was once a shareholder of Blackstone until it sold its stake in 2018, and it has experience jointly investing in U.S. and U.K. companies by establishing a "partnership fund" with the U.S. investment bank Goldman Sachs.

Chinese sovereign wealth funds, facing difficulties in directly investing in U.S. and European companies or infrastructure, have deployed hundreds of billions of dollars through private equity investments. Currently, they are reportedly focusing on alternatives such as the United Kingdom, France, Italy, Japan, and Saudi Arabia. Europe and Japan are also considered regions that offer "safe assets" capable of replacing major U.S. assets such as stocks and Treasury bonds.

Major pension funds in Canada and Europe are also considering reducing their investments in U.S. private equity. The Canada Pension Plan Investment Board (CPPIB) is adjusting its portfolio to reduce exposure to U.S. infrastructure assets. A major Danish pension fund has already suspended its investments in U.S. private equity. An executive from this pension fund told the FT, "We will invest again when the market becomes more stable and predictable," adding, "Otherwise, we will have to accept a significant discount rate."

On Wall Street, there is growing public pressure for a swift resolution, with many arguing that the Trump administration's tariff policies are placing significant strain on the U.S. economy. Blackstone CEO Jonathan Gray said during an earnings announcement on the 17th, "An economic slowdown will be unavoidable," and added, "The severity will be directly proportional to how long 'tariff diplomacy' continues." JP Morgan CEO Jamie Dimon has also stated that he hopes the United States can reach a basic agreement with its trading partners as soon as possible.