This four-part series explores how structural inflation may reshape portfolio construction. The opening piece set the context, while this piece examines the core function of growth. Subsequent pieces will cover resilience and total portfolio integration.
For much of the post-1980 period, the environment for growth investing was exceptionally supportive. Inflation declined, interest rates fell, globalization expanded, and capital became progressively cheaper. These conditions supported economic activity, but they also increased the value investors were willing to assign to earnings expected far into the future. Growth investing gradually became associated not only with capital appreciation, but with long-duration assets, expanding valuation multiples, and business models able to access abundant capital.
A world of structural inflation does not bring growth investing to an end. Economic expansion, innovation, and productivity remain essential sources of long-term return. However, the way investors obtain growth exposure may need to evolve. If inflation is more variable, interest rates remain less predictable, and capital is no longer consistently inexpensive, the distinction between growth and duration becomes increasingly important.
This raises a central question: what should a growth portfolio look like when the economic environment itself has changed?
Growth remains essential
In the first article in this series, we organized portfolios around three broad functions: growth, resilience, and total portfolio integration. Growth assets are responsible for long-term capital appreciation and may include global equities, private equity, venture capital, growth-oriented credit, and other return-seeking investments.
The need for this portfolio function has not changed. Most investors cannot achieve their long-term objectives through defensive and inflation-sensitive assets alone. Pension funds must fund future liabilities, insurers need to compound capital, sovereign institutions seek to preserve wealth across generations, and individual investors must maintain purchasing power over increasingly long investment horizons.
The objective, therefore, is not to reduce growth exposure simply because inflation has become more important. It is to construct that exposure more deliberately. In the previous environment, investors could often rely on broad market appreciation, falling discount rates, and relatively stable macroeconomic relationships. In the next environment, returns may depend more heavily on earnings durability, capital discipline, and the ability of individual businesses to adapt.
Not all growth is the same
Traditional portfolios frequently treat public equities as the primary growth allocation, with private equity, venture capital, and growth-oriented opportunistic credit and real estate managed as separate asset classes. Yet these investments are connected by a common economic purpose. They provide capital to businesses and participate, directly or indirectly, in future cash-flow growth and capital appreciation.
Viewed through this lens, the relevant distinction is not simply public versus private. It is the source and quality of the underlying growth. Some companies depend on cheap financing, stable input costs, or distant future profits. Others possess pricing power, strong balance sheets, recurring revenues, or the capacity to fund investment internally. Both may be described as growth companies, but their sensitivity to inflation and interest rates can be very different.
Structural inflation may therefore increase the importance of selectivity. Businesses able to pass higher costs through to customers, improve productivity, or operate with limited capital requirements may be better positioned than businesses whose margins depend on permanently low input and financing costs. Equally, capital-intensive companies should not automatically be avoided. In areas such as energy systems, semiconductor capacity, automation, and digital infrastructure, rising investment requirements may themselves create long-term opportunities, particularly where barriers to entry are high and demand is persistent.
Artificial intelligence illustrates this distinction. It is often discussed as a digital productivity story, but its development also requires physical investment in data centres, semiconductors, power generation, transmission networks, and cooling systems. The opportunity may therefore extend beyond technology platforms to the broader ecosystem enabling their growth. Ultimately, AI is a physical transformation requiring energy, power grids, industrial materials, and other infrastructure before its productivity benefits are fully realized.
