Toby Watson has observed how inflation erodes wealth across multiple market cycles — and brings a clear-eyed perspective on why it remains one of the most underestimated risks facing long-term investors today.
Inflation may have retreated from its recent peaks, but declaring victory too early would be a mistake. For wealthy individuals and families focused on preserving capital in real terms, the challenge of inflation is structural rather than cyclical — and it demands a more considered response than simply holding assets that performed well in the low-inflation era. Toby Watson, a partner at Rampart Capital, brings decades of experience managing capital across different inflation regimes and offers a grounded perspective on what genuine wealth preservation requires.
Inflation has reasserted itself as one of the defining challenges of modern portfolio management — and the debate about its long-term trajectory remains genuinely unresolved. Toby Watson, who spent nearly 17 years at Goldman Sachs International working across structured credit, principal funding and hard asset lending, developed an acute understanding of how inflation dynamics interact with asset valuations, credit spreads and real returns across a wide range of market environments. That experience continues to inform how he approaches the challenge of protecting and growing wealth in an environment where price stability can no longer be taken for granted.
Why Inflation Is a Structural Challenge, Not Just a Cyclical One
The inflation surge of 2021 and 2022 caught many investors off guard — not because inflation had never happened before, but because a generation of portfolio managers had built their frameworks during a period of unusual price stability. For most of the three decades preceding the pandemic, inflation in the major developed economies was low, stable and broadly predictable. Central banks appeared to have tamed it. Portfolios were constructed accordingly.
The events of the past few years have served as a forceful reminder that this was a historically unusual period rather than a permanent condition. The structural forces that helped suppress inflation — globalisation, demographic tailwinds, technological deflation — are either reversing or weakening. For Toby Watson, this shift is not a surprise: his years managing complex structures across multiple market cycles gave him an early appreciation of how quickly inflation dynamics can reassert themselves when the conditions supporting price stability begin to erode.
For long-term investors focused on wealth preservation, this matters enormously. Toby Watson has consistently emphasised that inflation does not need to be dramatically high to be damaging. Even modest inflation, sustained over years, erodes the real value of capital with quiet but cumulative force. A portfolio that generates nominal returns without adequately accounting for inflation is not preserving wealth — it is losing it gradually, in a way that balance statements may not immediately reveal.
Why is inflation particularly challenging for wealth preservation portfolios?
Wealth preservation requires generating returns that exceed inflation in real terms — consistently, across market cycles and over long-time horizons. Toby Watson’s perspective, developed through years of managing complex credit and funding structures at Goldman Sachs International, is that this challenge demands explicit attention to real rather than nominal returns at every stage of the investment process. Assets that appear to generate attractive nominal returns can destroy real wealth if they fail to keep pace with the true cost of living — particularly for investors with significant spending commitments or philanthropic obligations that rise with prices.
Toby Watson on the Asset Classes That Matter in an Inflationary Environment
Not all assets respond to inflation in the same way, and Toby Watson is careful to distinguish between those that offer genuine protection and those that merely appear to do so.
Equities, as a broad category, have historically provided reasonable long-term protection against inflation — but the picture is considerably more nuanced in practice. Toby Watson points out that companies with strong pricing power tend to fare considerably better than those operating in highly competitive or price-sensitive markets. The quality of the business, and the durability of its margins, matters as much as the asset class label.
Real assets — property, infrastructure and commodities — have often been cited as inflation hedges, and for good reason. Their revenues and values tend to be linked, directly or indirectly, to price levels. But not all real assets behave identically, and the inflation protection they offer depends heavily on factors such as lease structures, regulatory frameworks and the specific commodity in question. Broad generalisations about “real assets” as an inflation hedge are less useful than careful, asset-by-asset analysis.
Fixed income presents perhaps the most complex picture. Conventional nominal bonds lose value in real terms when inflation rises unexpectedly — a dynamic that played out with considerable force in 2022. Toby Watson’s experience at Goldman Sachs International, working across credit structures with varying degrees of inflation sensitivity, gave him a detailed understanding of exactly these dynamics. Inflation-linked bonds offer more direct protection but introduce their own complexities around duration and real yield levels.
The Role of Factor Analysis in Managing Inflation Risk
For Toby Watson, the most rigorous approach to managing inflation risk is to analyse it at the factor level — identifying the inflation sensitivity of each investment in a portfolio and understanding how those sensitivities interact:
- Which positions benefit from rising prices, and through what mechanism?
- Which carry hidden inflation vulnerability that might not be apparent from their asset class label?
- How does the portfolio’s aggregate inflation exposure align with the client’s specific real return objectives?
These questions do not have simple answers, but asking them systematically produces a far more honest picture of a portfolio’s true inflation resilience than any surface-level assessment.
Why the Inflation Debate Is Not Over
Despite the decline in headline inflation from its 2022 peaks, Toby Watson’s view is that it would be premature to treat the inflation challenge as resolved. Several structural factors continue to create upward pressure on prices in ways that are unlikely to disappear quickly.
The energy transition, for all its long-term benefits, involves significant near-term costs that are working their way through energy prices and industrial input costs. The reshoring and friend-shoring of supply chains — driven partly by geopolitical considerations — is inherently more expensive than the highly globalised model it is replacing. And the demographic shifts underway in many developed economies are gradually reducing the supply of labour relative to demand, putting upward pressure on wages in ways that can feed through to broader prices.
For investors focused on preserving wealth across generations, these are not short-term considerations. They are the backdrop against which long-term capital allocation decisions need to be made — thoughtfully, with a clear-eyed view of real return requirements and genuine inflation resilience built into the portfolio from the outset. That, for Toby Watson, is the foundation of serious wealth preservation in the world as it actually is.
