How Can Institutional Investors Prepare for Life After Gary Gensler Leaves the SEC?

Amid the uncertainty, one thing seems clear: SEC chair Gary Gensler is set to step down, and institutional investors are already anticipating a new regulatory landscape for US markets. 

Trump had previously promised at the Bitcoin 2024 conference in July that he would fire Gensler on day one of his return to the White House, but it appears that the chair plans to step down from his role on January 20, 2025, the day of the President-election inauguration. 

Gensler's departure will change Wall Street's regulatory landscape, and on the surface, it appears that a more focused move towards deregulation and an end to Gensler's famous cryptocurrency skepticism. But how can institutions prepare for the changes that next year will bring? Let's take a deeper look at the state of play for US markets moving into Trump's second term: 

Regulatory Climbdown

One key adaptation that institutional investors will need to make is preparing for a deregulated Wall Street. 

The regulatory climate in the US had been more expansive in the wake of the 2008 financial crisis, with Congress expanding the US government's oversight of the financial industry to safeguard against future collapses. 

But it appears likely that Trump's second term will see efforts to scale back these reforms take place, with significant ramifications for the investment landscape. 

According to Reuters sources, one potential act of deregulation could see a curtailing of the Dodd-Frank Act, which was implemented in the wake of the financial crash with the intention of reducing systemic risk. Other ideas are focused on making it easier for private companies to raise capital, potentially opening up access to more challenging private funds and securities. 

The prospect of deregulation comes in direct contrast to Gensler's time as the chair of the SEC, which sparked controversy within the financial industry and cryptocurrency lobby. 

While there are certainly high-profile cases of collapses within the financial industry, fintech space, and cryptocurrency landscape, Wall Street appears to welcome the change of pace and more growth-focused approach. 

Is a Wall Street Rally Imminent?

Interestingly, Wall Street's positive reception to Gary Gensler's departure appears bullish even despite the dangers of deregulation and the prospect of Trump's tariffs hampering growth in the financial sector. 

According to Jenny Grimberg, executive director of global macro research at Goldman Sachs, anticipated average 20 percentage point tariffs on imports from China would likely provide modest boosts to US inflation while lowering growth in the United States. 

Despite this, Goldman Sachs anticipates that the S&P 500 will still rise by around 5% over the course of the year ahead. 

Even when facing the prospect of higher inflation and higher interest rates, Wall Street has still adopted a pro-growth outlook for the Trump administration, according to David Bianco, Americas CIO at DWS Group. 

Which Investment Opportunities Will Prosper? 

Gary Gensler had continuously pursued lawsuits throughout the crypto sector during his time as chair, targeting projects like Ripple, and exchanges such as Binance, Coinbase, FTX, and Kraken. 

While the case against FTX and owner Sam Bankman-Fried underlined the importance of regulation in the wake of the exchange's collapse in 2022, Gensler has long been identified as an obstructive force by cryptocurrency enthusiasts. 

Trump's election victory prompted a widespread cryptocurrency market rally that's underlined the underlined the expectation that Trump will bring a more conducive environment for cryptocurrency investing on Wall Street. 

As a result, we're likely to see more institutional investors ramp up their crypto exposure in the wake of Gensler's time as chair. 

Institutions can also find value among other asset managers in this new pro-growth, deregulated environment, and Berkshire Hathaway's BRK exposure to US infrastructure might help the conglomerate to prosper off the back of the Trump Presidency. 

Uncertainty Lingers

With the prospect of steep tariffs impacting US trade in the near future, diversification will be a major consideration for institutional investors seeking to manage their exposure to risk in the era of a newly-reformed SEC. 

This is likely to push more hedge funds and other institutions towards international investments, particularly as China ramps up its stimulus plan to overcome its own market impact. 

Institutional investors should explore a prime broker solution's catalog of globally focused market access tools to ensure that their risk is appropriately hedged as a new chair with a looser strategy rings the changes throughout the investment landscape. 

Is Wall Street Right to Anticipate Growth? 

The appointment of Elon Musk to the newly formed Department of Government Efficiency, a name that carries a knowing nod to cryptocurrency Dogecoin, takes us into uncharted territory in terms of the future of regulation on the financial sector. 

With the CEO of a company worth more than $1 trillion in market capitalization taking a key role in the new government, we're likely to see concerted efforts made to clear the way for further pro-growth strategies among some of the United States' largest market players. 

However, with the prospect of tariffs looming large over markets, all bets are off regarding what the future holds for Wall Street and institutional investors.

On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.