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by snake_doc
1214 days ago
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Your example doesn’t make any sense. The entire reason for the US Fed’s interest rate is to dictate the lower nominal bound of market returns in global capital markets. The FedFunds rate is the risk free rate, thus the market rate of return cannot be lower than this rate. Ie. The public equity market will return risk free rate + market risk premium. A better explanation would be: A pension funds needs to achieve long term nominal returns of 5% to meet liabilities. Fed funds rate is suddenly set to 0%, and treasury curve peaks at 2%. Market risk premium is 5% for public equities. Market risk premium is 10 % for private equities. To reach target returns while anticipating volatilities, it must allocate capital towards both public and private equities. This is the “sloshing”. Simple mathematics. Side note: any retail investor can access the risk-free rate (very close to it, minus transaction costs/expenses) through large money market funds. ie. https://investor.vanguard.com/investment-products/mutual-fun... |
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