By Harry Bush, head of UK wealth distribution at Nuveen
In today’s economic climate, where inflation rates remain stubbornly above central bankers’ targets, protecting clients’ capital within the new inflationary regime has become the number one focus for UK wealth managers.
Traditional and reliable assets such as cash and bonds are struggling to deliver inflation-beating returns, meaning wealth managers need to be looking for more diversified investments. Private capital, however, offers a compelling alternative.
Asset classes like private credit, infrastructure, and farmland, private capital brings income potential, diversification and stability, making it an intriguing option for wealth managers looking to build portfolios that can weather inflation and stay on track with long-term goals.
See also: Private markets: Wealth managers face high barriers to entry
The UK has been experiencing high rates of inflation, and for wealth managers—many of whom focus on retirement income and preserving purchasing power—finding assets that keep pace with this shift is crucial.
Traditional assets offered more reliable income generation and capital preservation in the past, but private capital now stands out as a dynamic choice, providing inflation resilience through less traditional routes. Because of their inherent long-term investment horizon and relative insulation from short-term market fluctuations, private markets can offer enhanced, risk-adjusted returns.
But where should wealth managers be looking within private and how should wealth managers be allocating to the asset class?
Key asset classes for inflation protection
Private credit, infrastructure, and farmland can all play a role in building inflation resilience. Private credit, for example, often features floating-rate loans that can adjust to rising interest rates, maintaining income levels even as inflation rises. This type of credit serves niches overlooked by traditional lenders, allowing wealth managers to create tailored income streams with added inflation protection.
Infrastructure investments, particularly in sectors like renewable energy, telecommunications, and transport provide steady demand and contractual income streams, many of which have inflation-linked adjustments built in. As infrastructure adapts to support trends like decarbonisation and digital expansion, investment opportunities in this sector continue to grow.
See also: Bain & Company: Private markets to make up 30% of AUM by 2032
Farmland also benefits directly from rising food prices and the increasing scarcity of land, offering both capital appreciation and steady income that keeps pace with inflation. By including farmland, wealth managers can further diversify portfolios and achieve long-term income goals, all while leaning on a sector that remains consistently in demand.
Debunking myths and structuring portfolio
Some clients may hesitate around private capital, believing it to be illiquid, opaque and volatile. While private assets don’t offer the liquidity of public markets, they bring a different form of security through structured cash flows and consistent income potential. A well-designed portfolio can balance these illiquid assets with more liquid ones, meeting short-term needs while benefiting from the inflation protection private assets can provide.
Adding private capital effectively means thinking about the client’s whole portfolio and strategically reducing low-yield bonds or cash holdings in favour of assets with real growth potential. A carefully balanced mix of private credit, infrastructure, and farmland can allow wealth managers to build portfolios that don’t just survive inflation, but potentially thrive in it.
While once considered a niche add-on, private capital has become a more central player in building resilient portfolios. For wealth managers, adding private capital can open up new avenues for income, stability, and inflation protection. In a world where traditional investments struggle to keep pace with rising costs, private capital offers a flexible and enduring way to meet client needs in an ever-evolving economic landscape.
