Focusing on the long term

Views from the TIAA General Account

According to Nuveen’s EQuilibrium survey, institutional investors, including insurers, are seeing less macro uncertainty in 2025, despite continued concerns over geopolitical risk and market volatility. How do long-term investors tune out the noise?

U.S. long-term investors are certainly challenged when there is uncertainty and instability, particularly around policymaking such as we have seen since the start of the year, and yet, we need to make sure we are forward looking and that our portfolios are fully invested and generating attractive risk-adjusted returns.

This question harkens back to our conversation in June 2024 around building resilience and “all-weather” portfolios. For TIAA, that translates into ensuring we are operating within our risk appetite and that our portfolio is well-diversified across industries and geographies with granularity in individual investments.

Our current view is that inflation will trend up and that conditions favor remaining in a higher rate environment. We lean into this by maintaining an ample capital base that will carry us through the turbulence and by building liquidity in the portfolio that will allow us to be agile when market volatility presents good entry points for specific asset classes, such as infrastructure and structured credit.

We continually evaluate the portfolio under different stress scenarios and work closely with Nuveen, our wholly owned asset manager, to trim risk at the margin based on this work. This ongoing defensive positioning is critical to long-term capital preservation and to the income-generating power of the General Account’s investment portfolio.

Plans to increase and diversify private market investment exposure was another key finding. How does the General Account source new private market opportunities?

Make no mistake, it is the illiquid nature of our liabilities and access to the broad Nuveen platform that has allowed TIAA to have operated in the private markets space for many years, well ahead of other industry players.

We are not surprised that investors are turning to private markets for investment exposure. These markets are growing and offering attractive opportunity for differentiated returns and portfolio diversification.

The challenge is that these investments are illiquid so unless you have the capacity to absorb this illiquidity it becomes difficult to scale these strategies in any given portfolio.

TIAA has several advantages. Our liabilities are relatively “sticky” and as a liability-driven investor this affords us the opportunity to allocate to these less liquid private asset strategies to capture attractive return premium.

Nuveen provides us another advantage in that they have focused on building robust expertise and scalable capabilities in a variety of private market strategies. Leaning into their reach and their capacity to originate unique deals in this space, we have steadily increased our private markets investments which have performed very well through different economic cycles.

Real estate debt remains popular among private fixed income allocations. How do you see the real estate recovery playing out?

There are many points of view around this question. One perspective is that real estate has always been a cyclical asset class with periods of overbuilding followed by eventual absorption leading to market stabilization. Another view is that we are amid a secular and permanent change specifically with office space in the post-covid period. Adding to this perspective is that we are seeing a number of office-to-residential conversion projects with returns yet to be fully tested.

Our view aligns with the perspective that real estate is about location, location, location and that not all real estate is created equally. While office is down, other real estate sectors are improving – even retail is showing signs of a return to favor. With rates higher, we are seeing valuations adjusting to this new environment and many opportunistic trades are happening that are attracting capital back to the sector.