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Shayne Dunlap, Pacific Asset Management: “Projections of economic models, central bankers and traders fundamentally flawed through 20 years of no inflation”

“We are in an era of great flux, and the next three years will bring big challenges in three key areas – all of which will have significant impact on the global bond market”, says Shayne Dunlap of independent London based asset manager Pacific Asset Management (PAM). Dunlap, one of three portfolio managers of the Pacific G10 Macro Rates Strategy, made this prediction on the occasion of the 5th birthday of the USD 669m big interest rate and FX macro strategy.

Dunlap, his colleagues Dr Richard Marshall and co-portfolio manager Oleg Gustap see the biggest challenges arising from “a mixed bag” of political and economic scenarios – ranging from Donald Trump not winning the US election and Ukraine gaining territory in the war against Russia to China bringing a renewed eco-momentum which elevates commodities and a soft landing for Europe and the UK with 4 to 6 interest rate cuts in total.

The third key area which the G10 team has identified, are huge changes through digitization and Artificial Intelligence – like the possibility of a gold-backed digital currency which has the potential to become a base currency for many emerging market countries, and AI supporting deflation in the long-term. “As intelligent 24/7 robots and software kill the competition, a human bargaining power, 3-day working weeks supplemented by universal basic income will be required to placate the masses”, Dunlap foretells.

Five biggest challenges of last five years

Looking back at five of the biggest challenges they have faced in the past five years since inception of their fund, PAM’s G10 Macro Rates team highlights inflation, fiscal priming, populism/binary politics, “Teflon (central) bankers” and market shock frequency.

“Will we see immaculate disinflation? Will shrinking Central Bank balance sheets rock the boat?,” asks the fund manager. In his eyes, projections of economic models, central bankers and traders are fundamentally flawed by biases created through 20 years of no inflation, whilst now trying to calculate policy or economic predictions in an environment of high inflation. Dunlap warns: “Therefore, trust no-one or anything! Which is why talk of a ‘soft landing’ to ‘no landing’ is on the rise.”

The Pacific G10 Macro Rates Fund (ISIN: IE00BG5J0X60), which was launched in March 2019, invests in the most liquid instruments of the ten most developed countries (G10). It offers the prospect of a return of cash +4% with a volatility of around 5% and a maximum drawdown of 8.5% to date. The Pacific G10 Macro Rates Strategy Fund has a volume of USD 222.8 million the entire strategy is worth around USD 669 million (as of 15 April 2024).

About Pacific Asset Management

Pacific Asset Management (PAM) is an independent asset manager based in London, primarily serving institutional clients. PAM currently offers five active strategies that are not tied to a benchmark or a pre-defined “house view”. All strategies, which are also authorised as UCITS funds in Germany and Austria, are owner-managed and are characterised by three investment features: They have a concentrated portfolio, are customised and result-oriented. PAM was founded in 2017 and currently manages assets of GBP 4.8 billion (approx. EUR 5.6 billion) as of 31 March 2024. Further information can be found on the Pacific AM website.

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  • Shayne Dunlap: Pacific Asset Management