Meketa’s 2022 capital market expectations

January 2022

We update our capital market expectations each year in January. Changes are driven by many factors, including interest rates, credit spreads, cap rates, and equity prices.

  • Many investors achieved returns in 2021 that were above their target return.
    • Much of the strong performance was driven by an increase in prices for most risk assets.
  • Bond yields increased in 2021, which has an upward impact on our CMEs.
    • However, this was offset by tightening credit spreads for many fixed income assets.
  • Moreover, higher rates are being priced into future bond yields.
    • This has a meaningful positive impact on our long-term CMEs.
  • As a result, our 20-year expected returns increased, on average.
    • That said, some of these same factors (e.g., higher valuations and future rate increases) will serve as headwinds over the next decade.
  • Absent significant growth and only modest increases in rates, this will be a damper on future returns, especially in relationship to those realized during the post-GFC period.
    • Hence our 10-year CMEs are lower than our 20-year CMEs.

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