Expect Chronic Inflation, Says CIO of Singapore’s Sovereign Wealth Fund

At the Milken Institute Global Conference, institutional investors discussed rethinking their allocations, as the inflationary environment seems likely to be here for the long haul.

Institutional investors at the Milken Institute Global Conference panel yesterday titled “Institutional Investors: Long-Term Strategic Thinkers” revealed that they are taking inflation more seriously. Previously, the Federal Reserve and other experts had referred to inflation as merely “transitory,” a comforting idea to institutional investors, who invest for decades as opposed to months.

“We see inflation being more chronic over the next decade,” said Rohit Sipahimalani, CIO of Singaporean sovereign wealth fund Temasek International.

For Sipahimalani, this has meant having to shift investment strategy in a way that he has never seen before.

“In the last 20 years, when we constructed our portfolio, we always talked about having things that did well in all different environments,” said Sipahimalani. “But the high-inflation environment was not something that people looked at that seriously. And I think we now need to look at that much more seriously.”

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As a result, Temasek is looking at more asset classes that they would not have previously considered.

“We don’t invest right now in things like metals and mining. But we are starting to wonder—should we?” said Sipahimalani. “More importantly, I would say in almost every investment we do now, looking at the pricing power of that company or the business becomes much more important.”

Raphael Arndt, CEO of Australian sovereign wealth fund Future Fund, agreed with Sipahimalani about the long-term potential for inflation.

“Right now we know that inflation will become more embedded in society, because we’ve got some supply constraints, as well as very, very loose monetary policy and very loose and populist fiscal policy,” said Arndt.

Arndt clarified that while he believes a productivity boom that counteracts inflation is in the realm of possibility—and that he is prepared for multiple scenarios—he’s not hedging his bets on it.