Colonial First State, one of Australia’s largest superannuation and wealth money managers, plans to accelerate its push into private credit investments to hedge against potential inflationary policies of Donald Trump.
The U.S. election result has reinforced the A$156 billion ($102.4 billion) manager’s plans to build out its private credit portfolio, especially if the president-elect carries out his campaign agenda, CIO Jonathan Armitage said. CFS aims to boost its allocation to the asset class, reported at less than 1% in May, to around mid-single digits in the next few years.
If most of Trump’s policies are enacted, “those are more likely to be inflationary than not,” Armitage said in an interview. “And we need to be sort of thinking about that and adjusting our portfolio appropriately.”
Trump’s planned tariffs on U.S. imports could hurt global trade, while tax cuts would further stretch the federal budget and migrant deportations could shrink the pool of cheap labor. That could then mean slower economic growth, faster inflation and a more cautious Federal Reserve, making the floating-rate nature of private credit deals more appealing, Armitage said.
“If you do see rates start to move back up again as a result of those inflationary pressures, or rates don’t move down as fast as markets have been thinking over the last sort of several months, then that exposure we think is pretty attractive,” he said.
CFS has also been adjusting its equities portfolio, moving some investments in large-cap global stocks to small caps in the U.S. and elsewhere, Armitage said.
“The other part of Trump’s policies is that he wants to stimulate economic growth domestically,” he said. “As a general rule, that would suggest that smaller companies would be a beneficiary.”
Positioning for volatile inflation has been front of mind for CFS for the past few years, which saw the firm reduce its holdings of government bonds, Armitage said. While Trump’s win last week hadn’t “radically” changed his thinking, it “enhances some of those pressures around labor supply, trade, the deficit position in the U.S.,” he said.
Australia’s A$3.9 trillion superannuation sector has ramped up investments in private assets as it seeks to diversify returns amid record inflows. About one-fifth of Australian retirement money is invested in private markets, even as regulators step up scrutiny of the asset class.
