Echoes: Will the Fed still deliver when market conditions shift?

For Gaëlle Malléjac, Global CIO at Ostrum Asset Management, the GFC ushered in central bank policies that have profoundly changed perceptions of risk for bond managers, while the aftershocks have evolved her approach to managing portfolios.

If you had to pick one specific market event from the past 25 years that has had a significant impact on you, your management style and way of thinking, what would it be?

Gaêlle Malléjac (GM): It is difficult to single out one event in particular, as they are all so interconnected. The global financial crisis [GFC] had an indelible impact on everything in financial markets that has come since, even if it is not enough, by itself, to explain where we are in Europe today.

But if I had to focus on one moment and its ramifications, it’s fair to say that the GFC profoundly changed the approach taken by central banks to financial crises. By injecting massive amounts of liquidity through unconventional monetary policies, the Fed in 2008 – and later Mario Draghi, President of the ECB, in 2012 – succeeded in restoring stability to the markets.

At the time, the move to negative interest rates in the eurozone was also unprecedented. So, incredibly, you actually lost money by lending it. These policies, which were unheard of until then, are now a part of the central banks' playbook. And market participants have learned that the arsenal available to central banks can be much broader, and the innovation they have demonstrated illustrates their ability to respond to various events.

These interventions have changed market psychology and the way central bank actions are predicted. They have helped to prevent financial contagion and curb instability in the financial system.

In the event of a new crisis tomorrow, is it plausible to think that central banks might stop providing the liquidity expected by the markets?

GM: I don’t think so. Indeed, the GFC highlighted the total interconnectedness of financial markets and financial institutions. This interconnectedness makes it very likely that central banks will intervene once again in the event of another financial crisis.

Where were you during the GFC and when did the enormity of the event become apparent?

GM: I was a portfolio manager at the time, head of aggregate bond management at Groupama Asset Management. Like so many others, I did not immediately realise the extent of the chain reaction that this crisis would cause in the markets. Because at the time the interconnectedness of financial markets and financial institutions wasn’t fully understood – including by the authorities who decided to let Lehman Brothers fail, considering its relatively modest size. The level of leverage and its widespread interdependency were not obvious.

When the announcement of the bankruptcy came, first, of course, you check your positions and hope that you will not be directly affected by this default. But pretty soon afterwards, you begin to understand the gravity of the situation and the emerging risk of contagion. For me, it was when the repercussions began to appear on other players, such as the insurer AIG. That’s when I realised the significance of the risk and that the problems were likely systemic.

How has the experience of the GFC helped to prepare us for some of the shocks we’ve seen since, such as the bank failures associated with the collapse of Silicon Valley Bank, for example?

GM: The GFC led to better regulation of banks and other financial institutions, through Dodd-Frank, Basel III and other policies. As a result, we now have a better knowledge and transparency of the risks within the banking system.

The issue with Silicon Valley Bank is that it did not fall within the scope of US banking regulation following the deregulation measures implemented by Trump during his first term. Nonetheless, the Fed reacted very quickly to curb any risk of contagion.

On the other hand, we have less control over what falls outside the scope of banking regulation. We do not know whether the continued expansion of private credit may represent a systemic risk or not. This was one of the questions raised by the bankruptcy of automotive equipment manufacturer First Brands in the US. It is a risk that we need to monitor.

So, it’s fair to say that each of these events has changed your perception of risk?

GM: Each crisis has caused us to rethink the way we manage portfolios, and have therefore been absolutely key in adapting how we generate performance. The correlation between different asset classes is fluctuating. Each strategy must be matched with the appropriate risk budget, and the portfolio must be analysed while considering the correlations between these strategies.

Risk allocation in the portfolio is not fixed. So, it is necessary to understand how your portfolio behaves when market conditions change, especially when correlations between asset classes evolve. 

It’s vital that portfolio management is responsive, and risk allocation flexible. And since the GFC in particular, the range of factors that need to be considered has broadened. In addition to the traditional factors of growth, inflation, and monetary policy, the political and geopolitical factors, as well as technical factors – flows, investor positioning, and market sentiment – have played a significant role. Both short-term and long-term factors must be considered when developing investment strategies.

Looking ahead, do you see a world that is more unstable and fragile than it has been in the past?

GM: We always need to take a long-term perspective in our investment strategies and have a good sense of where we think we are heading. There are of course many uncertainties today, as there have always been. The next 25 years will certainly be different from the last 25 years.

But it’s fair to say that we are at a tipping point. In recent decades, we have evolved under the regime of the 'great moderation,' characterised by relative economic stability with modest but steady growth, declining inflation, declining interest rates and supported by international coordination. Today, we are experiencing a paradigm shift, with the end of globalisation, geopolitical fragmentation, trade relations being used as a tool for exerting pressure, and the widespread pursuit of sovereignty.

So, when we look longer term, we need to take this paradigm shift into account in our thinking. We are developing scenarios based on these various transitions – be they political, demographic, climate or digital. And not all these trends are necessarily new.

Of course, Donald Trump's tariffs and other policies have acted as an accelerator for certain ongoing trends. We develop our views, which serve as a foundation for formulating our investment strategies. Portfolio construction is based on these investment strategies, with tactical positioning that incorporates various risk factors.

In the future, in the face of the major ongoing transitions – environmental, demographic, and digital – we will likely face a more inflationary world with higher interest rates. We need to integrate these transitions into our way of thinking. That’s why we align ourselves with a belief in sustainable, long-term investing and we continue to view our portfolios through an ESG lens.

A more inflationary world with higher interest rates sounds like a return to an ‘old normal’, to the world we saw before 2008. If that’s the case, how should bond investors adapt?

GM: If we have returned to a more inflationary environment with higher interest rates, we cannot consider that we have returned to the world we saw before 2008. We have entered a new era in which markets are operating in a world with less predictable, less homogeneous and more volatile growth, along with less cooperation between countries and central banks. We must therefore adapt our portfolio management to this new paradigm.

Younger managers in your teams would not have experienced the GFC and may have only read about the sovereign debt crisis in the eurozone from textbooks. Given the shocks of more recent crises, such as Covid, do they sometimes have a different perspective on central banks and different perceptions of risk? And if so, what advice do you give them?

GM: We strive to maintain a diversity of profiles and experience within our management teams. And we embrace the views they might have on more recent trends. For instance, younger people's approach to climate change and technology tends to differ somewhat from that of their more senior managers.

Overall, I try to advise them to be humble and curious. It’s important for us all that we don’t get trapped by our certainties in life, as well as in investing. That goes equally for those of us who have acquired many years of experience. So, I challenge anyone starting their career in investing to try to learn something new every day. Indeed, portfolio management is a constant source of learning.

Interviewed in November 2025