The era of ‘easy money’ is over, warns Carmignac boss
Star stockpicker Edouard Carmignac has urged investors to stop buying into passive funds as rising interest rates signal the end of ‘easy money’.
The veteran fund manager, who co-founded asset management house Carmignac in 1989, warned investors that staying in passive funds risks exposure to struggling, debt-heavy companies.
Rising interest rates force passive funds, which typically track a market benchmark, to hold on to indebted, unprofitable companies that can no longer cling to cheap debt.
“Easy money is a powerful anaesthetic… When money was free, simply owning the market could be enough. When money becomes expensive again, choosing becomes essential,” he wrote in his quarterly letter to shareholders.
Unlike passive strategies, active investing allows both investors and fund managers to filter out under performers in a bid to outperform the broader market and avoid the concentration trap.
The end of endless capital
Carmignac’s warning comes as governments and central banks grapple with rising bond yields and economic uncertainty, despite demand for capital continuing to soar in order to fund the AI cycle.
Carmignac wrote: “For nearly 15 years, governments, companies and investors have lived in a world where money seemed almost endlessly available. Governments spent, companies invested, markets assigned value,”
“This era is coming to an end. Money has a price once again.”
This shift has left governments and companies competing for a “finite pool of savings” to finance a “technological revolution with an extraordinary appetite for investment”, keeping borrowing costs elevated, he added.
Carmignac warned investors to be careful when choosing companies to allocate capital to, as the illusion of low borrowing costs can no longer hide “mediocre companies on life support”.
“When capital has a price again, projects must prove their worth and companies their ability to deliver a return on it,” he said.
Carmignac’s portfolio
Carmignac, which boasts roughly £33.7bn in assets under management, is known for calling the 2008 financial crisis and investing in public or late-stage private companies that are early in their growth cycle.
Recently, this has included Mistral, SpaceX and Revolut, where the Paris-based manager took part in fundraising rounds ahead of possible public listings.
The Carmignac boss identified augmented intelligence as its next investment target, dubbing it as a key part of the AI revolution and the firm’s future allocations.
“Augmented intelligence, space exploration, new financial services, the software revolution: each, in its own way, is part of the profound transformation of our world,” he wrote.