Panel
Investing in the New Normal
- Unconventional monetary policies, including near-zero or negative interest rates, will remain in place for "very long" as central banks cannot withdraw stimulus until unemployment, sentiment, and virus concerns normalize; short-term rates are expected to stay anchored at zero in the US and long-term rates below one percent, while Europe faces rates below zero, with the virus persisting for 1.5 to 2 years creating uncertainty that punishes bets against stimulus.
- Long-term real yields will be "pressed down," leading investors to face difficulties finding positive-yielding government assets, which will drive strategic shifts into the private market space over the "next three to four years" and away from risk-free assets toward actively managed hedging instruments with asymmetric profiles.
- A technology-driven economy will persist "for the foreseeable future" due to unresolved digitalization and income inequality, keeping the tech thesis on AI and machine learning intact with expected "step changes" in growth, while "winner takes all" dynamics will cause sector leaders to expand their dominance and market share.
- Monetary and fiscal policy lines will remain "blurred" as governments spend freely to address societal effects of technological transformation, with digital enablement becoming a "must-have" for corporations and governments to drive platform investment across the value chain, particularly in North American services for digital adaptation and last-mile logistics.
- Vision Fund anticipates sufficient investment opportunities despite high valuations, while Rishi Kapoor notes that public market performance is "not broad-based" and driven by tech companies, contrasting with a disconnected broader economy and private markets; asset managers plan to monetize the private asset trend by taking equity positions in other alternative managers and expanding participation to the "grassroots level" via improved secondary liquidity and 401(k) changes.
- Risks include "increasingly risky" buy-and-hold strategies for investors with horizons under 10 years due to drawdown sensitivity, requiring a shift from passive 60-40 allocations to dynamic asset allocation, alongside "viscosity of safe assets" forcing portfolios to take excessive risk or utilize uncorrelated strategies.
- Fees in the alternatives space face margin pressure from competition but may be offset by better margins from smaller ticket sizes as retail participation grows over the "next decade," potentially causing net fees for retail investors to rise if private instruments are packaged into funds of funds requiring liquidity compensation.
- Inflation risks are considered "small but not minuscule," driven by supply shocks and near-shoring, with investors hedging via yielding real estate expecting rent and price improvements, though widespread inflation is unlikely as central banks retain ample tools to control it and commodity prices are "not likely to go up."
- Structural and geopolitical risks include governments likely targeting successful crisis-era assets with regulation or higher taxes "over the next 10 years" to repay borrowed funds, while US-China trade tensions could become "detrimental" to productivity if they hinder digitization cooperation, despite investment in China and Southeast Asia remaining "huge" as a full disconnect is viewed as "very difficult."
- Technology's macroeconomic productivity impact has not "fed through" into visibly higher economy-wide productivity despite company-level gains, and public market volatility is expected to "exacerbate" during high event risks as assets drift to private markets, reducing public liquidity when needed most.