Rich Stock Valuations Push Spirit Super Fund to Private Assets

(Bloomberg) -- Australian pension fund Spirit Super is trimming its equity portfolio due to elevated valuations and will look to put more capital into private-market assets such as smaller domestic companies. 

The A$27 billion ($20 billion) fund will reduce its overweight stance on stocks back toward its target allocation, particularly in the U.S., where an earnings expansion hasn’t caught up to the rise in valuations, said Spirit Super Chief Investment Officer Ross Barry. Stocks will also be undermined when central banks hike interest rates to tame consumer cost pressures, he said.   

“We took the view 12 to 18 months ago that we should take a little bit more risk, but we’ve just been reviewing that of late,” Barry said in an interview. “A lot of that has to do with valuations are starting to look a little stretched around equity markets as well.”

Global equities reached an all-time high this month as corporate profits topped expectations. Still, with a build in inflationary pressures around the world, portfolio managers are grappling with how to position should borrowing costs push up quicker than anticipated. Barry said risks have “definitely increased” for a more extended period of higher inflation, making it harder to find compelling opportunities.   

“It’s been some time since the specter of inflation has haunted markets,” Barry said on Bloomberg TV Tuesday. “The key area probably we think where there are opportunities really is in private markets, and particularly in private equity.”

Canberra-based Spirit instead is looking to provide capital to small businesses that are commercializing a product, expanding offshore or can take advantage of the disruption to global supply chains. Regional Australia is also garnering some interest after workers migrated out of its two biggest cities during the pandemic and consumers hunt for higher quality produce, Barry said. 

“Australia of course is known globally as a clean, green producer of food,” he said. “So not withstanding what’s happening with Covid and trade at the moment, we still think the longer term outlook for food export is pretty strong.”

©2021 Bloomberg L.P.