The bosses of Australia's A$3.5 trillion ($2.2 trillion) superannuation sector are bracing for more market volatility as conflict in the Middle East adds to pressures curbing their returns.
"With high inflation persisting longer than we had envisaged, the potential of an interest rate hike and then obviously the Israel and Hamas issues, I can see that volatility is probably going to persist," said Vicki Doyle, chief executive officer of A$75 billion fund Rest Super, adding that returns had been weaker in October.
Already grappling with the prospect of interest rates staying higher for longer, the guardians of the nation's retirement savings said they're positioning for even more uncertainty as the Israel-Hamas war unnerves markets worldwide. They were speaking on a panel at the Australian Financial Review Super and Wealth Summit in Melbourne on Oct. 31.
The nation's super funds are having a rocky time of late, with the average default investment option posting a negative return for the second straight month in September, according to research house SuperRatings. Persistently high inflation has weighed on equity investments both globally and at home.
While market volatility would also likely throw up opportunities for the Rest investment team, it was a "period for a steady hand," said Doyle.
Australian Retirement Trust, the nation's second largest super fund with more than A$260 billion of assets, was "continuously" tweaking its asset allocation to deal with higher rates and ongoing volatility, said Chief Executive Officer Bernard Reilly. He acknowledged that returns in October had been negative.
"When you think about the assets that you're investing in, so whether they be equities, bonds, private markets, property or the like, making sure that you think about them with that horizon of the long-term investment is really a pretty good part of that," said Reilly, adding that the fund had recently upped its private credit investments.
While there was concern about volatility, it was important members understood pension funds invested for the long term rather than switching options due to sudden market swings, said Peggy O'Neal, chair of Vanguard Super.
"I think everybody is concerned, but you don't tell members to jump ship," she said.
David Bryant, head of Mercer Australia, agrees. "I don't think people should be jumping around for the sake of some volatility," he said. "We've just got to get used to it being part and parcel."
