Cash Is King at Australian Wealth Fund Eyeing Central Bank Pivot

Australia’s sovereign wealth fund is keeping billions in cash in a bid to be able to move quickly when markets get jittery over how central banks react to signs of brewing inflation.

Every financial asset from stocks to bonds is now “fragile” as central banks prepare to tighten policy in a reversal of the widely held view from last year that interest rates will be low for much longer, said Future Fund Chief Investment Officer Sue Brake. There’s a risk that stance from investors is “wrong,” causing a wide-spread sell-off, she said in an interview Thursday.

“You need to be nimble,” Brake said. “The cash gives you flexibility, so we can move quickly” when opportunities arise, she said.

The A$179 billion ($137 billion) wealth fund’s view comes as central banks from the U.S. to New Zealand signal rate hikes may come sooner than many anticipated amid uncertainty surrounding the world’s exit from the pandemic. The Federal Reserve indicated Wednesday they now expect two interest-rate increases by the end of 2023 as discussions around the process of scaling back its bond purchases begin.

Cash Is King at Australian Wealth Fund Eyeing Central Bank Pivot

Australia’s wealth fund held almost one fifth of its portfolio -- about A$33 billion -- in cash at the end of last quarter after warning returns will be harder to generate amid more volatile markets that are sensitive to inflation. How central banks react to that inflation is the “biggest threat” to its portfolio as it may cause a sell-off across all asset classes, Brake said.

“That is why the market is so focused on this,” she said. “It’s something you can’t be relaxed about.”

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