AustralianSuper, Australia’s biggest pension fund, said it would reduce its equity exposure and warned of a prolonged economic downturn after reporting a loss for the first time since the 2008 financial crisis.
The 260 billion Australian dollar ($178 billion) fund posted negative annual returns of 2.73% in the 12 months to June 30, ending a decade of growth in which the fund reported in average 10% per year.
“After more than 10 years of economic growth, our outlook suggests a possible shift from economic expansion to slowdown in the years to come,” chief investment officer Mark Delaney said Monday.
“In response, we have started to readjust to a more defensive strategy as conditions become less favorable for growth asset classes such as equities.”
Delaney joins a growing number of economists and financial experts who are predicting a global recession. Last month, a Financial Times poll of leading academic economists found that 70% expected the United States to enter a recession next year.
Other Australian pension funds would likely follow AustralianSuper, said research group Rainmaker Information, which forecast an average return of minus 2.8% for the year. Australia’s financial year runs from July 1 to June 30.
The last time the AustralianSuper lost money to its members was in the 2008-2009 financial year, when the collapse of US investment bank Lehman Brothers precipitated a global financial crash. That year, the average AustralianSuper balance fell by 13.3%.
This year’s losses followed confluence factors – including pandemic supply chain bottlenecks, Russia’s invasion of Ukraine, a global energy crisis and runaway inflation – which have drives stock markets down.
Australia’s S&P/ASX 200 stock index was down around 10% on Monday from a year ago.
Its pensions business is the fifth-largest pension system in the world, with assets under management of A$3.5 billion at the end of 2021, according to Moody’s.
Unlike other pension systems, the majority of Australian funds are ‘defined contribution’ schemes, meaning they do not provide members with a fixed income in retirement, as in end-of-life salary schemes. career or defined benefit. This frees them to invest in riskier assets such as stocks, but leaves them more exposed to market movements.
Alex Dunnin, director of research at Rainmaker, said AustralianSuper was “one of the few funds that have an uncanny knack for doing well year after year”. But he said the recent market falls were too widespread for the fund to avoid losses. Measured from January rather than last July, he said AustralianSuper’s top investment option was down 7%.
He added that AustralianSuper’s fixed income funds had lost even more value than his default investment option, showing that bonds were not a “safe haven” in current economic conditions.
“For retirees, who tend to be heavily weighted in bonds and cash, this is not good news at all,” Dunnin said.
AustralianSuper’s Delaney said the fund’s average balance was still up 9.32% per year on average over 10 years, and warned members against reacting to poor results. Under the fund’s rules, members are able to determine their own investment options, although the majority choose to stay in the default option.
“In our experience, reacting to short-term market volatility can make members worse off in the long term, and retired or near-retirement members should remember that they may still be invested for many years. years to come,” Delaney said.