Dr Power said the investment landscape has changed significantly as a result.
“The concept of risk-free investing, where capital invested earns a positive after-inflation return, has underpinned fixed income and equity investing in the western world over the last three decades,” Dr Power said.
He argued, however, that the liquidity injection of the central banks has moved developed markets interest rates to a point where returns are now below inflation.
Dr Power explained this is the result of governments around the world taking on greater levels of debt since 2008, along with the ageing populations of the developed economies of the west and Japan.
“Quantitative easing, in effect, is a frantic effort by western and Japanese authorities to stop the natural deflation of their economies as the population ages and the size of their workforces start to shrink as a percentage of total population,” Dr Power said.
The increased productivity resulting from technological advances has not been sufficient in offsetting this demographic drag, he added.
“Japan in particular has now endured two lost decades of growth and the question on where to invest is becoming more difficult to answer,” said Dr Power.
Dr Power said that asset managers must see themselves as the “navigators of capital, unanchored from the traditional certainties of a positive-yielding risk-free rate”.
“Our challenge is to choose the appropriate vessel, ensure capital is preserved and deal with the structural changes caused by central bank liquidity as new anchor points emerge,” he said.
According to Dr Power, there will be many opportunities within emerging markets, and inflows to Asian currencies already reflect this changing landscape.
“We believe safe havens should offer investors a risk-free real return, not a return-free risk, which is becoming increasingly difficult to find in developed markets,” he said.
