Key facts
- Edouard Carmignac warned that rising interest rates signal the end of 'easy money'.
- Carmignac is advising investors to be more selective and avoid passive funds.
- French economist Jean-Pierre Landau cited falling savings, rising investment needs, and heavy public debt as drivers for higher real interest rates.
- Landau believes the world is moving towards a regime of structurally higher real interest rates.
- Carmignac received AMF approval to include a limited stake in Mistral in some of its funds.
The era of 'easy money' is over, with rising interest rates signaling a shift towards higher borrowing costs for governments and companies, according to Edouard Carmignac, founder of asset management firm Carmignac. Carmignac urged investors to move away from passive funds, warning of exposure to struggling, debt-heavy companies in a landscape where easy credit is no longer available.
Carmignac, speaking at the firm's La Rentrée conference, likened the past years of zero interest rates to a shop in Cairo's souk advertising 'everything is free.' He noted that France is now borrowing at 4.5% for 10 years, increasing the burden of debt. While not predicting a catastrophe, Carmignac emphasized the need for stricter investment discipline, stating, 'We come from a scenario where easy money allowed us to buy everything. To avoid mistakes, we need to be much more selective.'
French economist Jean-Pierre Landau echoed these sentiments, telling Mint that falling global savings, increasing investment needs for technologies like artificial intelligence, and significant public debt accumulation are pushing real interest rates higher structurally. Landau, former deputy governor of the Banque de France, indicated that the favorable conditions for low rates over the past three decades are ending.
Carmignac also expressed optimism about artificial intelligence, calling it 'the greatest revolution in history, after that of fire.' He believes AI will free employees from uninteresting tasks and could extend healthy life expectancy. The firm is preparing for this future, having received authorization from the AMF to include a limited portion of the unlisted company Mistral in several of its funds, with more concrete AI-related announcements expected in January. Carmignac's general manager, Christophe Peronin, described this as a 'structured experimentation' with AI to 'augment fund managers.'
Landau outlined policy prescriptions for a high-rate environment, focusing on pro-growth policies, prudent macroeconomic stability to manage inflation, and predictability in long-term policy to lower risk premiums. Regarding de-dollarization, he noted that while trust in the dollar may be waning, viable alternatives are scarce.