Behind the Balance Sheet #21 The Economist - Gavyn Davies on Inflation, Markets, Streaming & Politics
10 snips
Apr 19, 2023 AI Snips
Chapters
Transcript
Episode notes
High Past Returns Lower Future Expected Returns
- High past returns have 'brought forward' future returns, implying investors should expect lower long-term returns than previous decades.
- If rates must rise substantially to control inflation, returns could fall abnormally low for a period.
Pensions Need Structural Adjustments Not Panic
- Pension systems have already adjusted by shifting from defined benefit to defined contribution, reducing direct vulnerability to lower returns.
- Governments must also consider delaying benefits if longevity rises to keep schemes sustainable.
Private Equity Mirrors Public Market Valuations
- Private equity historically delivered leveraged public equity returns and must ultimately reflect public market valuations.
- If portfolio companies are not overleveraged and avoid refinancing during credit freezes, a systemic meltdown is avoidable.