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Rethinking Foundational Beliefs:
The Great Capital Re-Pricing
Investor Knowledge + 5 Minutes
Published: July 23, 2026
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During the decade that followed the Global Financial Crisis (GFC), investors experienced a rare phenomenon in financial history. They had access to exceptionally low borrowing rates, a vast amount of capital, and liquidity that was readily available. This wasn’t for a couple of years. This was a period of time so long that these conditions really began to feel like the norm.
It was anything but normal.
Extraordinary Times Require Extraordinary Measures
In the face of the GFC, global central banks needed to act swiftly and aggressively. Interest rates were slashed and balance sheets ballooned. Between 2009 and 2021, the U.S. Federal Reserve (Fed) held its policy rate below 1% for roughly 11 of 13 years, and during that time its balance sheet expanded from under US$1 trillion to nearly US$9 trillion following the pandemic¹. This helped stabilize a shaken banking system and support economic growth.
The persistence of these conditions, however, helped normalize historically low financing costs, even though such environments are highly unusual over longer economic cycles. As a result, they also reshaped investor behaviour. Psychologically, for investors, the cost of capital wasn’t really a constraint anymore; it became more of a background assumption. Today, the era of "cheap money" stands out not as a new equilibrium, but as an outlier.
The Aftermath
Today, many of the forces that supported ultra-low rates have reversed. Inflation has proven more persistent than many expected, governments are running larger fiscal deficits, and labour markets remain relatively tight. While the initial rise in interest rates occurred several years ago, the broader implications are still unfolding. At the same time, the global economy has entered a new phase of capital intensity. Significant investment is being directed toward infrastructure, artificial intelligence (AI), energy systems, and national security.
The rise of generative AI illustrates this shift. The world's largest technology companies, many of which built their business models around highly scalable and relatively capital-light software platforms, are now committing hundreds of billions of dollars toward data centres, computing infrastructure, semiconductors, and energy capacity. Some industry forecasts suggest that global AI infrastructure spending could surpass US$1 trillion annually before the end of the decade², underscoring the scale of capital required to support the next phase of technological development.
The defining investment paradox of this decade may be that capital is becoming more expensive just as the world's biggest growth opportunities are becoming more capital intensive. Capital is less abundant, and increasingly, it is needed in larger quantities than many investors became accustomed to during the post-GFC era.
When the Price of Capital Matters Again
The return of a meaningful cost of capital changes how markets function:
- Financing is no longer assumed
- Growth must be funded more carefully
- Profitability and cash flow regain importance
- Balance sheet strength becomes a source of resilience rather than a drag on returns.
The market response since 2022 reflects this shift. Many of the highest valued speculative growth companies of the prior cycle experienced significant valuation resets as interest rates rose, while companies with stronger cash flows, profitability, and balance sheet strength generally proved more resilient³.
This shift does not mean innovation or growth disappears; Its more about the bar rising. It also coincides with a broader change in market leadership. During much of the low-rate era, investors often favoured business models that could scale rapidly with limited physical investment. Increasingly, however, market attention is shifting toward businesses capable of deploying large amounts of capital productively and generating attractive returns on that investment. Whether in AI infrastructure, electrification, industrial reshoring, or energy systems, many of today's most important growth opportunities are also among the most capital-intensive.
Investment Implications in a Re-priced World
For equity markets, this shift emphasizes differentiation between companies. Companies capable of generating sustainable returns on invested capital stand out more clearly than those reliant on continuous access to cheap funding. Valuations also become more sensitive to execution, not just expectations. Across industries, management teams are increasingly emphasizing productivity, profitability, and measurable returns rather than growth at any cost. This reflects a broader shift in capital discipline occurring throughout the economy.
From a portfolio construction perspective, a higher cost of capital reinforces the importance of balance. The assumptions that underpinned portfolios during the era of near-zero rates may not hold in the same way going forward. Investors may benefit from emphasizing diversification, high-quality businesses, and multiple sources of return rather than relying on a single macroeconomic outcome.
Low borrowing costs were the result of an extreme policy response to a unique period in the economy and financial markets. What’s interesting today is that the cost of capital is moving higher just as demand for it is ramping up. Big investment themes—like building out AI, upgrading energy systems, modernizing industry, and increasing defense spending—are all capital-intensive and will need significant funding over the next decade.
For investors, this represents more than a change in interest rates. It signals a broader re-pricing of capital itself. Recognizing that shift and understanding which businesses can thrive within it may prove to be one of the most important foundational investment principles of the decade ahead.
¹ U.S. Federal Reserve Economic Data (FRED). Effective Federal Funds Rate and Total Assets of the Federal Reserve accessed June 2026.
² IDC, AI Infrastructure Spending Caps Historic Year at ~$90 Billion in Q4 2025; 2029 Spending to Eclipse $1 Trillion, April 16, 2026.
³ MSCI, Interest Rates and Equity Valuations, 2023; S&P Dow Jones Indices market performance data, 2022-2024.
Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.
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