“I think history tells us pretty clearly that populist protectionist policies eventually are extraordinarily damaging,” said The Economist’s Editor-in-Chief, Zanny Minton-Beddoes in her opening speech at SuperReturn International 2017. “But it can take quite a while for that damage to become manifest.”

The conference, held in Berlin from February 28 to March 2, was the best-attended SuperReturn International in the conference’s 20-year history, and with good reason: the world’s business and geopolitical climates are in a state of flux unlike anything seen in the past several decades.

Just after Minton-Beddoes took the podium for her talk, three renowned private equity investors joined Jason Kelly, New York Bureau Chief for Bloomberg LP, for a panel discussion titled “State of the Union: ‘The New World Order.’”

William E. Ford, CEO of General Atlantic, opened the discussion by saying that he thinks the state of the union of private equity is “quite healthy,” in that the industry has produced attractive returns, distributions have been at record levels, and the industry has done a good job dealing with marcoeconomic and political volatility. However, with $1.3 trillion of uninvested capital, the new investment side is probably the most challenging part of being in the PE business at this time.

“We know it’s going to end, but we’re having fun,” said Jan Stahlberg of EQT AB, speaking of the low interest rates that have dominated the market for so long. “I think the fun will continue for quite some time, but it will end, and it will end badly.”

“The way that [the PE industry reacts] to macroeconomic and global political factors is very unique, if you think about it, in the history of private equity,” Mike Arougheti of Ares said, adding that investors are getting a lot of mixed signals. Combine what is happening in the U.S. political system with upcoming elections in Germany and France, and what you have is, in essence, a referendum on globalism versus populist protectionism.

According to Arougheti, we have two to four years before the economic effects of Brexit become obvious, and 12 to 18 months before we see effects of changing U.S. policy.

Ford and Stahlberg agree that the trend of higher exit multipliers is unlikely to continue. “I think that it’s going to put a premium on growth and underwriting growth cases because many of the factors that drove returns—low interest rates, high debt availability, rising multiples—are unlikely to continue to exist,” said Ford. “So we’re going to have to look for companies that drive true secular growth combined with operational improvement to generate our returns.”

What changes does the PE industry face next?

Ford said that potential corporate tax reform in the U.S. is likely to result in lower corporate tax rates. However, he believes the carried interest deduction is likely to be removed as part of that reform, which will change the calculus of the buyout business. “We’ve had perhaps five or 10 years of ‘overtime’ in terms of its tax treatment, largely because the government couldn’t produce tax policy,” said Ford. “I think we’re likely to get tax policy, and [the carried interest deduction] is the most likely to go.”

“The deductibility of interest is the biggest question mark,” Arougheti commented. “It will absolutely change the calculus for private equity. It will de-risk the private equity asset class, so even if it means we have lower returns, we’re taking less risk with less levered capital structures.”

The next SuperReturn International conference is scheduled for February 26 through March 1, 2018, at the InterContinental Hotel in Berlin.