As pension investors transition to a new regime, one question has come to the fore: where will the returns come from?
The Great Moderation of the past 25 years was marked by stable economic growth, low interest rates and low inflation. They favoured ‘set-and-forget’ asset allocation. That was shattered by four recent cascading game changers: the severe monetary tightening by key central banks to tackle the inflation spike; worsening conflicts in the Middle East and Ukraine; the rise of populism in the West due to the cost-of-living crisis; and the US–China geopolitical rivalry fragmenting the intricate web of global supply chains. That integration is now seen as a source of risk and insecurity.
On the upside, however, this is also creating opportunities as capital markets adjust to the new regime. With public equity markets in the West flirting with their all-time highs, the search for good risk-adjusted returns is turning the spotlight on two sets of thus far underinvested asset classes.
The first set covers illiquid assets in private markets, benefiting from the recent surge of investment in strategic sectors like AI, defence, renewable energy and infrastructure. Private markets are increasingly seen as providing exposure to innovation while IPO activity remains sluggish, especially in Europe. As such, they are viewed as a most likely source of value creation for the foreseeable future.
You can now read the full whitepaper at the link below
