Australian superannuation funds are increasingly positioning portfolios for resilience, with private markets, infrastructure and real estate attracting greater attention as investors navigate geopolitical uncertainty, inflation concerns and the disruptive impact of artificial intelligence.
The findings emerged from the qualitative phase of Morningstar’s fifth annual Asset Owner Perspectives study, which included interviews with 25 asset owners globally, including 12 across Australia and New Zealand.
Morningstar Sustainalytics Asia-Pacific commercial lead Michelle Cameron said the discussions highlighted how asset owners were responding to a rapidly changing investment environment.
“Asset owners act as stewards for some of the largest pools of global capital and as fiduciaries for a wide range of beneficiaries and key stakeholders.
“As a result, they often find themselves on the forefront of shifts in the market environment, global investment strategy, and regulatory standards and policy.
“This year, we’ve seen plenty of changes across all of those factors, so the conversation with this cohort has brought several important issues and pressure points to the surface,” Cameron said.
According to Morningstar, Australian and New Zealand asset owners are increasingly adopting a total portfolio approach as they contend with market volatility, policy uncertainty and the opportunities and risks associated with AI.
The research found growing interest in private markets and defensive asset classes, while investors continue to grapple with the importance of maintaining exposure to the United States.
One New Zealand pension fund participant said portfolio resilience had become a key focus amid ongoing uncertainty.
“What we’ve seen in recent times is, and this is what I like about the way we do things, we build portfolios for resilience. And these shock absorbers that I’ve mentioned are really coming to the fore in times of slowing inflation, potential stagflation, and all the ugly things that come with geopolitical uncertainty.”
Australian superannuation funds interviewed for the study pointed to infrastructure and property as areas less vulnerable to technological disruption.
“So, I’d say we have more appetite for things that are unlikely to be disrupted, like real estate or infrastructure. For example, AI is not going to displace a building.”
Despite concerns around US policy settings and global conflict, several super funds indicated the strength of the US economy and corporate sector remained difficult to ignore.
“The path of rates and inflation is top-of-mind at the minute. We’ve looked through the war with Iran. We’ve looked through the supply shock to a large degree.
“But then when you look at the underlying fundamentals of the US market and its ability to generate higher returns on equity than other parts of the world ― that’s a handbrake on us reallocating away from the US.”
The study also found super funds are embracing AI primarily as a productivity tool rather than incorporating it directly into investment decision-making processes.
One Australian super fund said AI was becoming increasingly useful for processing information, but still required human oversight.
“AI has actually improved and become a very helpful tool. And the output that it’s producing on the first attempt is getting better and better, but it still needs a bit of NI, a bit of natural intelligence to critically assess the output and make sure that it doesn’t have any errors in it. But we’re increasingly using it and finding it a very useful way to assimilate large bits of information down to what’s relevant.”
Another super fund noted that while AI remains a discussion point with investment managers, it has not yet been formally integrated into investment decision-making frameworks.
“We haven’t yet incorporated AI into investment processes in a formalized way in terms of decision making or anything like that. It is conversations we’re absolutely having with all of our managers. What are you thinking about? How are you using it? What efficiencies can you get from it?”
Climate transition also remained a significant focus for asset owners, with respondents highlighting ongoing challenges around ESG data quality and consistency.
Super funds said they were increasingly focused on real-world decarbonisation outcomes and better measurement standards.
“One of the big challenges with ESG has been, it’s been very hard to get metrics and data. All the providers have their own methodologies, their own metrics, and so It’s been very hard to define what success looks like. Success against what? So I think what we would like to see is we would like to see providers come together and develop an industry-wide standard of measurement.”
Another super fund emphasised the importance of internal research capabilities when assessing sustainability issues.
“You know, we find ESG data and it can be quite useful, right? But for us, first and foremost is that we rely on our internal, you know, ethical research capabilities… our in-house view is number one.”
