AustralianSuper, Australia's largest pension fund, is planning to reduce its global equity allocation next year due to signs that the artificial intelligence (AI) boom in U.S. markets may be losing steam, according to John Normand, the fund's investment strategy head.
The fund highlighted two key concerns: valuations of U.S. mega-cap tech stocks have reached historically high levels, while leverage for AI investments is expanding at a "rapid" pace. Additionally, fundraising activities—including mergers and acquisitions, venture capital, and public listings—have accelerated.
"I'm seeing multiple factors converging that suggest we'll need to reduce our public equity exposure at some point next year," Normand stated.
"This reflects the interplay between two major trends: the AI cycle entering its mature phase and the Federal Reserve's expected policy tightening in 2027."
AustralianSuper currently holds its largest overweight position in international equities relative to benchmark indices, exceeding the standard allocation by 3 percentage points.
While Normand doesn't believe AI-related stocks have reached bubble territory, the fund has been restructuring its overseas equity portfolio since October by increasing exposure to listed infrastructure companies for diversification.
The pension fund plans to further boost its private equity allocation by 2026.
Normand also warned of "latent fragility" in bond markets, noting investors currently expect just a 25-basis-point Fed rate hike in 2027—historically, the central bank has typically implemented larger increases in the year following a rate-cutting cycle.
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