Tough times ahead, warns CEO of Australia’s largest pension fund

(Aug 16): Consumers and businesses will continue to struggle as global policy makers battle to get inflation under control, the head of Australia’s largest pension fund told a media forum.

“Our view is that there are some pretty tough times ahead,” Paul Schroder, chief executive officer of the A$260 billion (US$182 billion) AustralianSuper Pty, said on Tuesday.

“We think we are in a continually tight environment. The question now is what is the rate of that tightening and is there a pivot around the corner,” Schroder told a Reuters event. “Inflation is the main, and could be the only, game and the policy settings that respond to it.”

AustralianSuper, which has 2.7 million members, last month posted its first annual loss since the global financial crisis as rising inflation, geopolitical tensions and fears of an economic slowdown roiled markets.

Despite the tough environment, the business has ambitious expansion plans, according to Schroder, who has been CEO for almost a year.

He aims to grow AustralianSuper to A$1 trillion within a decade. The pensions specialist is ramping up hiring internationally as it seeks more investment opportunities globally. “We’re too big for Australia,” he said.

“We have absolutely nailed ourselves to the mast of scale because size and scale and skill bring benefits for members,” Schroder said. The business has completed several mergers, including last year’s agreement with Australian industry pension fund LUCRF Super, but has also turned down some merger offers with other super funds, Schroder said.

The pension manager plans to double the size of its London office, where it has backed redevelopment plans in Kings Cross and Canada Water, from 70 people to more than 150 people, he said. The firm is also growing its presence in New York and Asia, Schroder said.

Household fears

People are worried about where the economy is going and what that means for their finances, leading to a threefold rise in calls to AustralianSuper advisors in June.

Schroder said that while business earnings and household balance sheets were healthy and unemployment rates remained low, inflation is threatening the outlook. “We are looking for signs that people are finding it harder,” he said.

To help curb the impact of a worsening investing environment, the Melbourne-based institution has been increasing its exposure to government bonds, and pulling back from deploying money in private markets while valuations stabilize, Mark Delaney, chief investment officer of the pension fund, told Bloomberg in a July interview.

The global economy will struggle for about two more years as businesses and households adjust to tighter monetary and fiscal policies, Delaney said in the interview last month. “It takes 12 months to two years for tighter monetary policy to impact on the economy — and monetary policy is just getting tight now,” the CIO said. “That would tell you that the downturn is coming in 18 months time.”