We construct our capital market views and assumptions for all asset classes and geographies over a medium to long term investment horizon. This breadth of scope is combined with a depth of analysis to build a holistic framework that can be used for formu­lating asset allocation decisions. This allows us to capture the key drivers and interactions of asset classes and geographies whilst also considering the additional dimension of term struc­ture and multiple future scenarios. 

• We use a range of diverse inputs and modelling in our process,  including bespoke in-house modelling of structural factors like demographics trends, economic growth models, globalisation and  technological change.
• This is combined with deep-dive analysis of future scenarios – both qualitative using known risk factors, as well as quanti­tative work using GeneSIS, our in-house Monte Carlo engine.
• We consider each of the struc­tural building block components of asset class returns, including: real cash rates and term pre­mia; inflation; risk premia by asset class and geographical region; and illiquidity premia.

This enables us to build capital market assumptions that provide an anchor for where we expect returns to sit over the medium to long-term.

The philosophy underpinning our long-term capital market assumptions is based on an intuitive principle: investors face a risk-return trade-off when choosing assets, and in particular, they expect to receive higher returns for adding risk to their portfolio. The amount of risk and return will vary depending on the macro-economic backdrop, monetary policy, risk appetite, and a host of other factors. Yet the overall structure of the risk-return trade-off between asset classes is maintained over the long-term.