SYDNEY – Australia’s A$200-billion ($134.28 billion) sovereign wealth fund is increasing exposure to gold, commodities, private equity and infrastructure as it warns the future will echo the low-growth, high-inflation era of the 1970s.
The Future Fund outlined the changes, which also included widening its currency basket, in a note on Friday that questioned the value of traditional 60-40 portfolios and called for an investing shift to confront a world dealing with war, inflation and climate change.
“In this kind of environment there is a real risk of simultaneous slow growth, high unemployment, and rising prices that has some parallels with the stagflationary period that struck developed markets in the 1970s,” the note said.
Investors large and small are scrambling to adjust portfolios and philosophies undermined by the simultaneous cratering of equity and bond markets.
The eight-page note called time on four decades of investment tailwinds including falling interest rates and taxes, energy abundance and growing globalisation driven by China’s rise.
Investors now faced a world corrosive to asset prices: more war, the risk of capital controls and confiscations, bigger government, and the spectre of higher inflation.
In response the Future Fund is implementing six broad sets of changes, including more focus on dynamic asset allocation and liquidity.
“There are no simple answers for the investment community. Traditional approaches have delivered strongly, but it is doubtful they are fit for purpose in the future,” it said.
Report authors argue Russia’s invasion of Ukraine hints at a future of destabilized energy markets as well as higher inflation and taxes as countries prioritize security and resilience over efficiency.
($1 = 1.4894 Australian dollars)