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Highlights
- Wellcome Trust’s chief predicts no return to low interest rates seen pre-2022.
- Higher rates expected to impact asset valuations and private equity.
- Wellcome’s strategic bond issuance highlights foresight in long-term funding.
The chief investment officer of the Wellcome Trust, Nick Moakes, offered his perspective on interest rates, forecasting that the low rates prevalent before 2022 are unlikely to return. Speaking at the Sohn Hearts & Minds conference in Adelaide, Moakes shared insights into the implications of higher interest rates on various sectors, emphasizing an environment where rates below two percent may be a thing of the past.
According to Moakes, many financial analysts and investors seem to expect that interest rates will fall back to levels around one to two percent. However, he strongly disagrees with this notion, calling it unrealistic. Instead, he sees the current elevated rates as a “new normal” that investors need to adjust to. Moakes highlighted that this shift has wide-ranging effects, impacting everything from private equity valuations to the discount rates used in stock valuations.
The Wellcome Trust, based in London, is a charitable foundation managing substantial assets, and Moakes plays a significant role in its investment strategy. With a portfolio totaling around £36.8 billion ($72 billion), the Trust has a considerable presence in the financial world. In a strategic move to secure long-term funding, the Trust issued 100-year bonds at low rates during 2018 and 2021, locking in favorable conditions. The bonds, which were issued at rates of 2.5 percent and 1.5 percent, have since appreciated in value due to the rise in market interest rates.
Currently, these bonds trade with an approximate rate of five percent, aligning with Moakes' view that higher interest rates are the new benchmark. He suggested that this scenario requires investors and institutions to adopt a more realistic approach to the cost of capital and future financial expectations. The changes are especially relevant for sectors heavily influenced by discount rates, such as private equity. Moakes’ comments underline a broader adjustment period, where businesses and investors alike need to recalibrate their strategies.
As former BlackRock executive Moakes leads the Trust’s investment strategy, his outlook reinforces the need for adaptability in a changing economic environment.
