Inflation is far from tamed despite hopes of a global easing, according to the investment chiefs of two Australian pension funds looking to private assets for protection.
(Bloomberg) — Inflation is far from tamed despite hopes of a global easing, according to the investment chiefs of two Australian pension funds looking to private assets for protection.
Price pressures will likely remain more elevated than they’ve been for much of the past decade, partly thanks to strong and volatile job markets, said Jonathan Armitage, chief investment officer at Colonial First State Investments, with A$147 billion ($96 billion) of funds including pensions under management.
“We will see assets change their valuations because the inflation data will continue to move up and down, I think a lot more than people are currently predicting,” Armitage said in an interview. “And we do think that that is going to throw up opportunities.”
CFS is eyeing investments in data centers, cable networks and renewable energy projects as it seeks unlisted assets that perform well in a higher inflation environment. The fund has recently made some key internal hires in its investment team as it takes a more active approach to asset allocation, Armitage said.
Sonya Sawtell-Rickson, chief investment officer of A$74 billion pension fund HESTA, expects inflation to stay “above or at the higher end of targets” over the next decade, she said in an interview. As a result, the fund is buying investments to hedge against price pressures, including real assets and inflation-linked bonds.
Factors including aging populations and the transition to renewables, which will require heavy capital investment, point to inflation remaining high, said Sawtell-Rickson.
Surprisingly mild US inflation reports have spurred expectations that the Federal Reserve is nearing the peak of its tightening cycle. Still, Fed officials have also recently warned of rates staying restrictive, while former Treasury Secretary Lawrence Summers last week said he was concerned about inflation picking up after wage growth was more than expected in July. The next US inflation data is released on Thursday.
Australian Pension Funds With $500 Billion Go Bargain Hunting
For Australia’s A$3.5 trillion pension fund industry, known locally as superannuation, “inflation is a real concern,” said Sawtell-Rickson. It’s front of mind “for anybody with long-term liabilities and especially for superannuation funds.”
Pensions are likely to boost private credit and infrastructure holdings as inflation concerns persist, according to Bruce Phelps, managing director and head of institutional advisory and solutions at PGIM. Floating rates attached to credit investments made them appealing for funds, while revenues from assets such as toll roads were more likely to match inflation, he said.
“You’re seeing more diversification, the marginal dollar moving into private credit and the marginal dollar moving into infrastructure,” he said in an interview.
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