Australian Super Funds Vulnerable to Disrupted Hedging Model
Risk-seeking behavior among global institutions has reached 20-year highs, according to State Street's latest custody data. Despite market volatility, including war, trade tensions, and inflation, institutional investors have shown little panic, instead remaining focused on long-term earnings and rates.
Australian super funds are particularly exposed to this trend, as they hold large, concentrated equity positions at 20-year highs. These funds also carry historically low levels of fixed income, making them vulnerable to market downturns.
The Australian dollar has traditionally served as a natural hedge for global risky assets, but institutions buying up the currency could disrupt this correlation. The Reserve Bank's deputy governor warns that this model may break down rapidly, exposing super funds to significant losses.