CAMERA: our capital market assumptions update

Over the past quarter, valuation-based return estimates for most broad equity markets as well as alternatives such as UK property and infrastructure have fallen modestly.

Last quarter we introduced CAMERA, our capital market assumptions framework. CAMERA combines two sources of return expectations – those from an equilibrium model that is primarily risk-based, and those from a model that is primarily valuation-based – to form a sensible blend of expected returns over a range of time horizons. The framework is based on the premise that in the long run, expected returns should converge to some equilibrium level, while over shorter horizons we may expect some deviation from equilibrium assumptions as a function of market valuations.