SYDNEY: Australia’s pension funds should consider investing more in local-currency credit products as the greenback’s recent decline may pose risks to their expanding overseas portfolios, according to the head of investment strategy at Challenger Investment Management.
Nearly half of about A$4.2 trillion (US$2.7 trillion) invested by these so-called superannuation funds are in overseas markets, according to an April report by the Reserve Bank of Australia.
More than half of those offshore assets aren’t hedged, said Pete Robinson of the firm, a unit of Challenger Ltd, one of the country’s largest annuity providers.
Private credit “gives you that kind of middle of the road return with a lower correlation to growth, even if you are exchanging US dollar-denominated assets for Australian dollars,” he said.
“If we get further repricing of risk, public credit can be similarly attractive for these investors.”
Robinson’s comments point out the role that credit can play as global investors re-evaluate where to commit funds, more so, following the weeks-long market upheaval from Donald Trump’s chaotic tariff rollout.
Australia’s central bank has also raised concerns that pension funds’ huge exposure to offshore assets could be risky to the domestic financial system if they need to liquidate in a crisis.
Of these funds’ overseas investment total, about US$400bil are in the United States and that is expected to climb to US$1 trillion by 2035, said a report commissioned by global asset manager IFM Investors Pty Ltd.
With uncertainties over Trump’s economic agenda looming, the Bloomberg Dollar Spot Index is down nearly 7% this year.
The Australian dollar has appreciated more than 4% against the greenback year-to-date.
“Even if you think that the probability of US dollar primacy ending has doubled from a very small number to a slightly less small number, it still should have you questioning what you’re doing with your portfolios,” Robinson said.
Challenger Ltd, the investment management company, is listed on the Australian Securities Exchange and a constituent member of the S&P/ASX 200 and S&P/ASX 300 indices.
It is also the largest provider of annuities in the country. — Bloomberg
