Tina Byles Williams, Philadelphia-based founder, chief executive officer and chief investment officer of Xponance, a multistrategy investment firm, thinks the Federal Reserve's 2% inflation target is "unrealistic" and might not be achieved anytime soon.
"I think the markets and the economy can live with an inflation rate of 3% or 4%," she said in a Thursday interview. "The Fed established the 2% rate in January 2012 – not all that long ago – and they could conceivably raise that target to a more realistic figure, but there might be political reasons why they do not."
Xponance has about $14 billion in assets under management.
Ms. Williams said her institutional clients are most concerned about how to manage their asset allocations in a climate few have ever encountered before.
"Bonds lost their ability to serve as a diversifier to equities last year, we have high inflation and rising interest rates," she said. "Plus we have an ongoing war in Europe that makes asset allocation decisions even harder."
Amid this difficult climate, she suggests that institutional clients stick to "defensive" positions in equities, such as consumer staples, which are not as sensitive to economic ups-and-downs. She also sees a "strong structural bull" case for the energy sector, partly due to continuing high demand.
Within bonds, Ms. Williams likes Treasury inflation-protected securities, or TIPS, and bonds with low or neutral-duration, amid this period of continuing high inflation.
Ms. Williams, a former CIO of Philadelphia's Board of Pensions and Retirement, also suggests that institutional investors who want to move into private assets consider secondary funds and U.S. infrastructure plays.
"Infrastructure is an area that has been underinvested for a long time and is ripe for rapid growth appreciation," she added.
She also sees the likelihood of a recession in either late 2023 or early 2024, but added it will likely be mild and relatively brief in nature. "I think it will be a garden variety type of recession," she said.