Australia’s largest superannuation fund sees the global economy struggling for about two more years as businesses and households adjust to tighter monetary and fiscal policies.

Investors have been conditioned to think that market pullbacks are a short-term phenomenon, but the current crisis is different, says Mark Delaney, chief investment officer of the $260 billion pension giant AustralianSuper.

“It takes 12 months to two years for tighter monetary policy to impact on the economy -- and monetary policy is just getting tight now,” Delaney said in an interview with Bloomberg in London. “That would tell you that the downturn is coming in 18 months’ time.”

AustralianSuper this month posted its first annual loss since the global financial crisis as rising inflation, geopolitical tensions and fears of an economic slowdown roiled markets. To help curb the impact, the Melbourne-based company has been increasing its exposure to government bonds, and pulling back from deploying money in private markets while valuations stabilise.

Delaney said the traditional 60/40 or 70/30 portfolio structure for weighting equities and bonds -- where 60 or 70 per cent of funds is invested in stocks and 30 or 40 per cent in bonds -- remains sound, “but you want to have more inflation protection in your portfolio than you’ve run in the last 15 years.”

“So things like real assets and some commodities will be handy for that environment,” he said.

‘You have to understand that any increase in value during the COVID period was illusory, it was fuelled by free money -- it was not real.’

Mark Delaney

AustralianSuper has boosted its holdings of government bonds from around 5.9 per cent to 10 per cent, Delaney said.

He believes the withdrawal of fiscal stimulus after COVID is responsible for the current downturn, which has seen the MSCI World Index fall around 20 per cent since the start of the year.