Market participants are hoping — warily — that the global financial crisis' final chapter, under the heading of central bank quantitative tightening, can play out worldwide with minimal drama over the next few years.
At the depths of the crisis in 2008 and early 2009, no one was anticipating a nine-year bull run by equity markets powered by a flood of central bank liquidity, said Deb Clarke, Mercer Investment Consulting's London-based global head of investment research.
The question now is whether there's going to be "a price to pay for that (and, if so,) how negative a period we could see in the next 10 years," she said.
"The full story of the GFC is not only the crisis and its response, but the implications of that response, which may not be fully revealed until the next cycle," said Jeffrey Rosenberg, managing director and chief fixed-income strategist with New York-based BlackRock Inc.
Most observers say, for now, that another systemic crisis is unlikely, even if there's a general consensus that markets should prove much less generous over the coming decade.
That confidence rests, in part, on the more robust regulatory regime put in place after the crisis.
"Changes in money market regulation and securities lending risk management, along with increased capital requirements in banking institutions, have created a stronger and more resilient financial system than we had in 2007," said Stephen N. Potter, vice chairman, Northern Trust Corp., Chicago, and president, Northern Trust Asset Management, from 2008 to 2017.
That shorter regulatory leash for banks, meanwhile, has opened significant opportunities for institutional investors, including pension funds, to fill the void.
For big swaths of the loan market now, "banks are no longer the lenders; hedge funds are no longer the lenders," said Charles Van Vleet, chief investment officer of Providence, R.I.-based Textron Inc.'s $7 billion defined benefit plan. "Both have term structure mismatches — investing in things for three to five years" with depositors who can take back their money in a matter of months.
Instead, "the lender of choice over the last 10 years has increasingly been people like myself, buying debt in lockup structures" — an evolution that has made the financial system much less vulnerable to those term structure mismatches, Mr. Van Vleet said.