- Apollo expects `zero rate' environment for extended period
- MBK worries about currency war with further yuan devaluation
TPG Capital and other private-equity investors said the U.S. Federal Reserve will probably keep interest rates low and avoid destabilizing markets.
The Fed on Thursday opted to keep rates pinned near zero for now, while saying that most policy makers still expect to raise rates this year. Fed Chair Janet Yellen pointed to the strength of the U.S. economy, tying the decision to delay liftoff to fresh uncertainty about the outlook abroad and to financial market turbulence over the past month.
“We are in a situation where the U.S. is growing moderately well, maybe even a little better than the people were expecting,” David Bonderman, founding partner of TPG Capital, said at Milken Institute’s Asia Summit panel discussion in Singapore Friday. “But there is a lot of uncertainty everywhere else. And this is not a time when the Fed is going to destabilize anything.”
Slowing growth in China has rippled across the world, hitting commodity-producing countries hard. Domestically, Fed officials are also grappling with an inflation rate that remains too low, rising just 0.3 percent for the 12 months ended July, according to the Fed’s preferred measure of price pressures.
“I think for better or for worse, for us as an investor, you are in a zero rate environment for a long period of time,” said Joshua Harris, co-founder of Apollo Global Management LLC.
China’s foreign-exchange reserves tumbled an unprecedented $93.9 billion last month as the People’s Bank of China intervened to support the yuan following an Aug. 11 devaluation. The benchmark Shanghai Composite Index has slumped 40 percent from its June 12 peak.
For Michael Kim, Seoul-based founder of private equity firm MBK Partners Ltd., the outlook for China’s consumption growth remains intact even though he’s concerned that the country’s move to devalue the yuan further may trigger a currency war.
“I worry about another devaluing of the renminbi,” Kim said at the same panel, referring to the Chinese currency. “I worry about the impact on the Bank of Japan policymakers, I think they’ll have no choice but to devalue the yen further. And the knock-on effect on Korea, that’s what I’m worried about even more.”
Efforts by governments to intervene in the markets will trigger growth and keep borrowing costs down, while hurting investment returns, Harris said at the same panel discussion.
“Governments have shown their willingness to plow as much money as they have into the system to actually keep things on track,” he said. “As investors, we have to be super creative to invest capital to create alpha in this kind of world."