Australia’s pension funds will be forced to push more money into less traditional assets — such as apartment developments and even direct lending to companies — after the strong recent performance of equities and fixed-income left valuations lofty in public markets.

That’s the assessment of investors managing money directly for, or on behalf of, the country’s A$2.9 trillion ($2 trillion) pension pool, who gathered in Hobart this week. With four out of five retirement savers in funds that have a target return of more than 3% above inflation and a government heaping pressure on under performing funds, that’s a tough ask, said Ross Etherington.

“We have to look at non-traditional asset classes to achieve those goals going forward,” said Etherington, chief investment officer at EISS Super, which manages about A$5.8 billion.

Struggle For Returns

Australian pension funds have just 22% invested in non-traditional assets

With stocks and bonds moving higher together, investors are searching for other areas to diversify their investments to hedge against the fragile global economic outlook. For the world’s fourth largest pension pot, that could mean more flows into alternatives — away from the almost 80% that currently sits in equities, bonds or cash. “There will be a lot of pressure on investors to try and chase returns for the next six to 12 months,” said Ron Temple, managing director and co-head of multi-asset investing at Lazard Asset Management, who spoke at the three-day conference. The nation’s sovereign wealth fund last week reiterated future returns won’t be as strong as recent years. AustralianSuper, the country’s largest pension fund, in July told its customers that returns going forward will be lower than in recent years.

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