AustralianSuper adopts ‘defensive’ strategy after first loss since 2009

AustralianSuper, Australia’s biggest pension fund, said it would cut its exposure to stocks and warned of a prolonged economic downturn after it reported a loss for the first time since the 2008 financial crisis.

The A$260bn (US$178bn) fund reported negative annual investment returns of 2.73 per cent in the 12 months to June 30, ending a decade of growth during which the fund returned on average 10 per cent a year.

“After more than 10 years of economic growth our outlook suggests a possible shift from economic expansion to slowdown in the coming years,” chief investment officer Mark Delaney said on Monday.

“In response, we have started to readjust to a more defensive strategy, as conditions become less supportive of growth asset classes such as shares.”

Delaney joins a growing number of economists and financial experts predicting a global recession. Last month, a Financial Times poll of leading academic economists found 70 per cent expected the US to go into recession next year.

Other Australian superannuation funds were likely to follow AustralianSuper, said research group Rainmaker Information, which predicted an average return of minus 2.8 per cent for the year. Australia’s financial year runs from July 1 to June 30.

The last time AustralianSuper lost money for 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 13.3 per cent.

This year’s losses followed a confluence factors — including pandemic supply chain bottlenecks, Russia’s invasion of Ukraine, a global energy crisis and soaring inflation — that have sent equity markets plummeting.

Australia’s S&P/ASX 200 share index was down around 10 per cent on Monday compared with a year ago.

Its superannuation sector is the fifth-biggest pension system in the world, with assets under management of A$3.5tn as the end of 2021, according to Moody’s.

Unlike other pensions systems, the majority of Australian funds are “defined contribution” schemes, meaning they do not provide members with a set income in retirement, as in final salary or defined benefit schemes. That frees them up to invest in riskier assets such as equities, but leaves them more exposed to market movements.

Alex Dunnin, director of research at Rainmaker, said AustralianSuper was “one of the small number of funds that have an uncanny knack of doing well year after year”. But he said recent market falls were too widespread for the fund to avoid losses. Measured from January rather than last July, he said AustralianSuper’s main investment option was down 7 per cent.

He added that AustralianSuper’s fixed income funds had lost even more value than its default investment option, showing bonds were not a “safe haven” in current economic conditions.

“For retirees, who tend to have high weightings to 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 cent per annum when averaged over 10 years, and warned members against reacting to the poor results. Under the fund’s rules, members are able to determine their own investment options, though the majority opt to remain in the default option.

“In our experience, reacting to short-term market volatility may see members worse off in the long run, and members in or close to retirement should remember they may still be invested for many years to come,” Delaney said.