Shifra Ansonoff of Preqin explains the Fisher Effect: nominal interest rates embed the market's inflation expectations. When actual inflation exceeds what rates priced in, unexpected inflation hits. Long-term fixed-rate loans protect investors only until refinancing, when rising rates can wipe out that advantage.
when we do this analysis, we look at also unexpected inflation and expected inflation. So expected inflation is really the Fisher effect formula, right? The nominal rates that incorporate the inflation component. So what is the market predicting? And then unexpected is really when you're seeing more inflation or less inflation than the formula would predict. So, but again, we see generally a correlation, but it goes much deeper than that. So not every property or investment is going to have protection. So you have to think about it from different angles. If you're financing the debt, right, and you have a long-term loan and you're locked into existing rates and rates go up, you're fine until you need to refinance, right?
