Money managers caution Australian pension funds' return expectations

Sydney

AUSTRALIAN pension funds were warned by money managers that future returns could be "muted" as elevated asset prices in public markets mean it will be harder to meet lofty return targets.

The cautious message, that ran through presentations at an Australian Institute of Superannuation Trustees (AIST) conference in Adelaide, also suggested some managers are waiting for fresh entry points to establish new portfolio positions.

"I've been saying for a while I think future returns will be muted," Simon Doyle, head of fixed income and multi-asset at Schroder Investment Management Australia, said on Wednesday. "I've been kind of wrong on that, markets keep doing well, but I think that will be the reality in the not too distant future."

The warning comes as funds managing Australia's A$3 trillion (S$3.1 trillion) pool of retirement lift allocations to non-traditional investments, such as venture capital and private debt, to enhance returns.

The AIST conference that concludes on Wednesday brought together clients and staffers from those firms, which have also begun to question the notion that fixed-income investments will cushion portfolios when equities sell off.

Future expectations are being tempered after a stellar recent performance - the median default investment option for Australian superannuation funds has returned 14.7 per cent in the financial year to April 30 and returns averaged an annualised 8 per cent over the past 10 years.

"Talking about retail and office asset classes, they are priced well and I think it's better to wait for a while for them to correct themselves," said Kumar Kalyanakumar, head of Australia real assets at AXA Investment Managers. Many people are finding it difficult to price risk in the current environment, he added.

To be sure, there remain opportunities. The global trend towards lower carbon-intensive energy will ramp up, and nascent industries like Australia's civil space endeavours could offer ways to capture alternative long-term returns, said Sam Sicilia, chief investment officer at Host-Plus Pty.

"We're talking about the economy of the future," he said in an interview. "We need to make a return for super fund members, but you get all those secondary benefits. Why not?" BLOOMBERG