unrealistic assumption that, if true, should be a boon to global economic growth. to sum up the impact of the four key drivers of growth, deleveraging and demographics are quite unambiguously a dampener while energy appears a benign force. the long term trend for productivity is hard to predict. but even assuming a generally optimistic prognosis for productivity, it is quite likely that global growth in the next 20 years is likely to be lower than in the last 20. this means that returns from financial investments are also likely to be lower in the next 20 than in the last 20. safeguarding long - term returns the modest outlook for long - term economic growth presents a major challenge for government funds to close the widening gap between their financing needs and investment returns. • on the liabilities side, population ageing in the advanced economies will increase pension claims and place a heavier burden on social services such as healthcare. • on the assets side, slowing global economic growth will constrain investment returns. there are three ways to narrow this mismatch between trends in assets and liabilities : • the first is to reduce financing needs by lowering social expenditures or increasing fiscal revenues. both are politically difficult to do. • the second is to reach for yield by taking on various combinations of higher leverage, longer duration, and greater credit and liquidity risks. but the public perception and character of government funds limit their scope for aggressive risktaking. • the third way is to expand the investment portfolio to include new asset classes and new geographies for consistent and uncorrelated return streams. this option, while not easy, probably offers the best way forward. consider new asset classes. many government funds are increasing their allocation to nontraditional assets such as real estate, infrastructure, and even private equity. • australian and canadian pension funds have been pioneers in infrastructure investing, from as early as the 1990s. bis central bankers ’ speeches • norway ’ s government pension fund global plans to increase its real estate investments to as much as 5 % of its assets, with a corresponding decrease in its bond holdings. • calpers has been increasing its allocation to private equity and real assets, including real estate and infrastructure. next, new geographies. over the last 20 years, government funds have steadily reduced their home bias in their equity holdings, investing in markets outside their own country. the big shift in portfolio allocation in recent years has been to emerging markets. if long - term growth prospects for emerging

’ s position now appears still to be relatively favourable, while new zealand is more in the middle of the pack of advanced countries. yet, other features of our national balance sheets give some cause for concern should another global funding pressure event occur. it will take a long time for the structural causes of financial fragility in europe to be addressed, and for the process of public and private balance sheet repair to run its course. in the meantime, crises may reoccur and cause either funding disruption to australia and new zealand, or even worse, a renewed global economic downturn. local issues include the relatively heavy dependence of our economies on bank lending, the relatively heavy dependence of the banks on foreign funding, and the high degree of concentration of the banking sectors. we therefore seem to face a similar priority to other advanced economies in reducing the risk that investors will progressively tighten constraints bis central bankers ’ speeches on the room for fiscal action. countries with high debt / gdp positions remain exposed to the longer - term economic outlook, putting a premium on structural reform measures to promote growth. of course, implementing such reforms is easier said than done, especially when their short - term effect on demand is usually adverse. the fiscal balancing act over the next few years is to restore headroom through consolidation where possible, while taking into account any adverse short - term impacts on activity. this should help reduce the chances of getting backed into the very difficult and constrained space in which a number of advanced economies now find themselves. however, this is of course yet another policy challenge in the category of things easier said than done. moreover, the link to monetary policy is particularly important in the current environment, because of the zero lower bound on interest rates. fiscal austerity is probably not as contentious when monetary policy loosening can offset its short - term effects on economic activity. monetary policy the events of the past five years have led monetary policy into unfamiliar territory. after responding largely successfully to the priority of reducing and stabilising inflation following the 1970s experience, monetary policy now faces a number of new concerns. first, financial cycles are evidently able to destabilise the economy without necessarily implying large inflation fluctuations. second, the financial system is far from neutral “ plumbing ” for the real economy. instead, it substantially modulates economic shocks and can generate shocks itself. it can also materially affect monetary policy ’ s effectiveness in stabilising economic activity. we can probably expect that, for some time, risk premia on private