Australian Fund With $123 Billion Weighs Private Credit Boost

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(Bloomberg) — Pension and wealth manager Colonial First State is looking to floating-rate debt and inflation-protected bonds to navigate rising inflation and slowing growth caused by higher energy prices.

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The surge in oil through the Iran war may have already shaved off half a percentage point from US gross-domestic product in 2026, while also pressuring prices higher, Jonathan Armitage, chief investment officer of CFS who manages a A$179 billion ($123 billion) portfolio, said in an interview.

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To protect the holdings, the Australian fund manager is weighing an increased allocation to debt investments that benefit from rising interest rates, anticipating that borrowing costs will remain higher for longer amid sticky inflation and geopolitical uncertainty.

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Private credit, where lending is typically offered on a floating rate basis, “could provide some interesting opportunities for us to continue to deploy more capital,” Armitage said, downplaying fears a wave of recent redemptions may hurt the asset class. “I don’t think there are systemic problems,” he said, adding the firm had “stress-tested the portfolio” with the investment manager CFS had partnered with. 

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Armitage’s comments echoed sentiment from a Melbourne investment conference last week, where Blackstone Inc. and Apollo Global Management Inc. brushed off mounting concerns about the $1.8 trillion private credit industry. Both firms said the perceived risks don’t reflect what they’re seeing on the ground. Hostplus, one of Australia’s largest pension funds, also signaled little concern.

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Inflation-linked bonds and asset-backed financing are other components of CFS’s portfolio Armitage anticipates will gird against higher inflation, which is typically a headwind for fixed rate debt given it erodes the value of money.

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Asset-backed financing, which can include floating-rate lending, can deliver “low to mid-teen returns,” net of fees, which Armitage sees as “the type of building block in the portfolio right now that we think is absolutely critical for this type of environment,” he said. “We’re seeing more opportunities come up in that particular area in recent weeks.” 

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