Australia’s largest pension fund braces for prolonged downturn


(Bloomberg) – Australia’s biggest pension fund sees the global economy struggling for about two more years as businesses and households adjust to tighter monetary and fiscal policies.

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Investors have been conditioned to think market declines are a short-term phenomenon, but the current crisis is different, says Mark Delaney, chief investment officer of the AU$260 billion ($175 billion) pensions giant AustralianSuper Pty.

“It takes 12 months to two years for tighter monetary policy to have an impact on the economy – and monetary policy is only getting tighter now,” Delaney said in an interview with Bloomberg in London. “That would tell you the downturn is coming in 18 months.”

AustralianSuper posted its first annual loss since the global financial crisis this month as rising inflation, geopolitical tensions and fears of an economic slowdown rattled markets. To help limit the impact, the Melbourne-based institution has increased its exposure to government bonds and pulled back from deploying money to private markets while valuations stabilize.

60/40 debate

Delaney said the traditional 60/40 or 70/30 portfolio structure for weighting stocks and bonds remains solid, “but you want to have more inflation protection in your portfolio than you ran into in the past. over the past 15 years”.

“So things like real assets and certain commodities will be helpful for that environment,” he said.

The fund increased its holdings of government bonds from about 5.9% to 10%, Delaney said.

He believes that the withdrawal of fiscal stimulus after Covid is responsible for the current slowdown, which has seen the MSCI World index fall by around 20% since the start of the year.

“Central banks gave out free money just as supply-side shocks were happening during Covid, and the combination of the three proved to be quite combustible,” he said.

The 60/40 portfolio will rebound, if history is any guide

Private market funds are changing hands at deep discounts in the secondary market as investors unload assets they fear will fall further.

In the largest transaction of its kind, the California Public Employees Retirement System in recent weeks completed the sale of about $6 billion of its private equity fund stakes to second-hand buyers at a discount. average of 10% from a September valuation, Bloomberg reported. .

Global hiring

AustralianSuper still has big plans for global expansion and is looking to hire staff internationally at its New York and London hubs, and aims to open a second office in Asia after Beijing. He expects assets under management to almost double in five years to reach 500 billion Australian dollars.

This global ambition involves adjusting compensation packages to attract top talent from other asset managers. “We had to change our practices to be fit for purpose and size,” Delaney said. “It’s inevitably part of what we have to do as we go global.”

Bankers are jumping ship to pension funds for better hours, less stress

While the global financial crisis has prompted a re-examination of the financial sector, the current economic crisis should bring greater scrutiny to the role of central banks in printing money, according to Delaney.

“You have to understand that any increase in value during the Covid period was illusory, it was fueled by free money – it wasn’t real,” he said. “It massively inflated all asset prices.”

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