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Global money managers seek investment opportunities in era of higher rates


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Global money managers seek investment opportunities in era of higher rates

A "new normal" of high global interest rates, elevated Treasury yields and cash sitting on the sidelines are among the key concerns for some of the world's top money managers speaking at an event in Hong Kong on Nov. 8.

Global central banks, led by the US Federal Reserve, have pushed interest rates higher since early 2022 to tamp inflationary pressures. Most economists predict rates will stay elevated for longer. That is contrary to a more recent era where cutting rates has become the standard formula to solve a crisis, senior executives said. With trillions of dollars of cash waiting to be invested, getting into long-term assets is seen by some fund managers as the key to success.

Here are some comments from top fund managers speaking at the Nov. 6-8 Global Financial Leaders' Investment Summit jointly organized by the Hong Kong Monetary Authority, the Securities and Futures Commission and the Hong Kong Academy of Finance. Some comments have been edited for clarity.

Mike Gitlin, CEO of Capital Group: We have a whole generation of finance investment professionals who only grew up in a more abnormal period, where they saw the global financial crisis, quantitative easing and supply chains closed with COVID. Now, we have a period that looks more normal with 10-year Treasury yield being somewhere around the average during the period, from 1958 until the global financial crisis.

People want to stay invested and they want to get the big things right. As the forward market predicts the Fed to cut by 75% basis points over the next 13 months, interest rates are relatively close to the peak in developed markets and there is an opportunity to own bonds at 6%, 7% or 8%.

I want to debunk some fake news that, in the alternative credit space, public credit cannot generate alpha. It's a fact that our 10-year public credit has generated 97 basis points annualized of excess return through 2022.

Anne Richards, CEO of Fidelity International Ltd.: Adding to what is normal, I think there are two things [that] have changed. One is global demographics, which is going to be very different in the next 20 years, and our economic models have yet [to] get to grips with this fact. The other thing is the interaction between fiscal and monetary policy, where governments [are] leaving much, much more to central banks to sort out consequences for their own finances. There are some quite tough choices that have to be made, which will then have ramifications for what the investment horizon looks like.

The transmission mechanism from interest rates to inflation is much slower now than [it has been] historically, while it is still there, so this year will be a year of cautious policy, which probably means higher for longer, but with less likelihood of big jumps in either direction.

Andrew Schlossberg, president and CEO of Invesco Ltd.: Our biggest issue is, there is too [much] cash on the sidelines — a third to a quarter of portfolios — and what are we going to do to bring it back into the market place. One of the greatest challenges is that the tensions around the world is really playing on the psychology, so not only interest rates but also the political environment will need to get more clear.

Mark Wiedman, head of global client business at BlackRock Inc.: The first big force — interest rates. There is about $4 trillion of cash that is sloshing around waiting for action. We don't know when that cash will come back in, but that is the first big overhang the clients talk to us [about] all the time. The second big driver is the transition to a low-carbon economy, in which the world right now invests about $2 trillion a year in energy of various forms.

Now is a golden age for getting back into long duration assets, which [is] going to be a bigger part of our portfolio going forward, followed by private credit and infrastructure investments.