AustralianSuper’s willingness to hold fixed income investments has diminished as a result of low yields and that fact that bonds have not offered the liquidity needed in the current environment.
Speaking on a Bloomberg webinar today, AustralianSuper chief investment officer and deputy chief executive, Mark Delaney said yields at the moment were very low and would stay long for the time being and this did not offer the same diversification benefit as what they would have historically when equity markets fell.
“Investors need to look for other sources of diversification to compensate the portfolio for holding less bonds,” he said.
“In fixed income portfolios, do you want to hold investments which offer a little bit more yield but reduced liquidity even though liquidity is a key aspect in a downturn? Our willingness to hold fixed income investments will diminish because they don’t offer the same liquidity aspects that we need.”
Delaney said other assets that would provide more diversification included foreign exchange, synthetic strategies and unlisted assets.
“You’re just going to have to have a balanced portfolio of diversifiers rather than purely relying on fixed income,” he said.
“The biggest one is FX, the Australian dollar has quite significant diversification characteristics so funds may hold more foreign currency than historically.”
Commenting on unlisted asset valuations, Delaney said valuations tended to lag because the unlisted market did not process new information as quickly as listed markets did.
“We changed our valuations in March because the circumstances of the pandemic had changed quite dramatically airports and property in terms of rental. We wanted to reflect those changes in the circumstances in the value of those assets,” Delaney said.
“Going forward, valuers will be able to pick that up and it will be part of the valuation process. We make adjustments when there are extraordinary changes in the underlying economics of those assets and we want to make sure fair value to ensure member equity.”