Bridgewater Associates head of the portfolio strategist group Atul Lele said on Apr. 8 that many investment portfolios are not adequately prepared for a range of inflation risks, as investors focus again on inflation-hedging in response to rising energy prices linked to conflict in the Middle East.
The issue is important because global economic changes and shifting capital flows are exposing portfolios to new forms of inflation risk, prompting asset owners to reconsider their strategies. The Organisation for Economic Co-operation and Development (OECD) recently raised its forecast for U.S. inflation in 2026 to 4.2 percent, while G20 countries face an average rate of four percent.
Lele told attendees at the Top1000funds.com Fiduciary Investors Symposium that “most portfolios around the world do not have the inflation protection they need going into the type of environment we’re talking about, [and] not positioned for 5-6 per cent inflation, let alone even 3-4 per cent. We’ve been wrestling with what this means from our own portfolio positioning perspective.” He added that many investors expect continued low inflation levels despite recent trends: “Many portfolios are positioned for a continuation of inflation staying within a 2-3 per cent band, which hasn’t happened for years, incidentally.”
Lele outlined three main types of inflation: demand-pull driven by price shocks and managed through fiscal policy; cost-push requiring commodities exposure; and monetary, which relates to strategic foreign exchange planning during periods of monetary debasement.
A poll at the symposium found that nearly half (46 percent) plan to increase allocations to inflation-protection investments while no respondents intend to reduce such exposures. Most attendees also reported greater confidence in their funds’ resilience following discussions at the event.
The discussion highlighted broader themes affecting global investment strategy including modern mercantilism—described by Lele as creating significant trade and capital flow shifts—and artificial intelligence’s impact on markets. CPP Investments’ Alistair McGiven said designing frameworks to manage these risks remains challenging: “One thing you can do is think about trying to remove risks that you don’t think are going to be compensated in particular scenarios…and then you can redeploy that risk somewhere where it is going to get compensated.” He emphasized efficient management of risk budgets across portfolios.
Khazanah chief investment officer Hisham Hamdan spoke about challenges facing emerging market investors who struggle with value capture despite strong growth potential: “Emerging market or Asia largely is 50 per cent of the world GDP…but… emerging markets is only 10 per cent of ACWI and much less in private assets [markets]. The Asian companies need to capture more value – that needs to happen.”
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