Volatility in 2025 and beyond

Views from the TIAA General Account

How does the General Account (GA) stay focused on long-term returns with so much uncertainty and volatility with the U.S. presidential cycle?

U.S. presidential cycles come and go every four years and while it is critical to understand the shifts and changes to macroeconomic dynamics and policies, the GA’s investment horizon needs to extend beyond these cycles.

I often talk about building resilience so that the GA is an “all-weather” portfolio. Every year, we receive flows from portfolio runoff and new retirement savings contributions, and these need to be invested in the market. We evaluate risks and opportunities not just in the U.S. but globally, across a broad array of asset strategies and leaning on Nuveen’s demonstrated expertise and robust investment process in executing our mandates. Setting these mandates, we consider the results of long-run strategic asset allocation modelling as well as asset-liability management, and we look to optimize expected returns within our risk appetite given these needs.

The incoming administration has indicated interest in several policy initiatives. Many of these have the potential to create tailwinds for inflation and potentially keeping rates higher for longer.

One thing is for sure, we will see even more volatility over the next few years. So it will be important to pick and choose how we deploy our investment program to remain on a defensive footing. In this regard, we continue to favor private markets, infrastructure and even municipal debt.

What is the GA’s outlook for 2025? How has this affected fixed income allocations? 

As mentioned, we expect to see a lot of volatility in key economic variables. We expect all-in yields will be pressured, mostly because investment grade credit spreads have tightened dramatically. We continue to maintain exposure to public fixed income, in particular in the long-dated part of the curve, and we are leaning into the private investment grade credit space for additional yield premiums and diversity of issuer and transaction structures.

With so much interest in private markets over the last year or two, where do you see the opportunities? 

When referring to private markets many think about direct lending and private equity. While that high yield part of the market has grown dramatically reflecting the decades-long pull back by banks, the investment grade private placement space has been a cornerstone of private markets for many decades. In periods of rising volatility and uncertainty, we favor investment grade private debt which often incorporates important covenant protections which help to mitigate losses in the event of a default. Within this space we have seen solid growth in private asset-backed structures with very attractive pricing relative to the risk presented. We also benefit from Nuveen’s direct origination platform and structuring expertise, which provides the GA with unique differentiated investment options.

What progress is the GA making towards net zero carbon?

We have made very good progress to date against our initial interim reduction target in the component of the portfolio that we designated as in scope for managing down our carbon intensity. So far, we are meeting or exceeding all of our 2025 targets.¹

It has always been our basic belief that climate risk presents long-run investment risk that would eventually be reflected in asset pricing. In this world, a portfolio with lower carbon intensity would ultimately perform better in terms of delivering consistent returns and stable-to-improving asset quality.

We have also maintained that our ability to continue moving the portfolio in this direction would likely mirror the pace at which the global economy would transition to low carbon solutions and outcomes. We note that the incoming administration is likely to have an impact on this pace of transition through reversals of regulation focused on climate risk and support other policies that promote fossil fuel dependency. We believe that many market participants may slow their transition to net zero as result of U.S. federal policy shifts, but this could be counterbalanced by a continued focus on decarbonization among U.S. states and globally.