AustralianSuper Sees Energy Transition Boosting Returns in Some Asset Classes

By Nick Hedley

Beyond the near-term surge in inflation and interest rates, the outlook for assets linked to energy transition is “very positive,” says Mark Tierney, global economist at AustralianSuper.

For the time being, investors are focusing largely on the outlook for interest rates as central banks grapple with a global cost-of-living crisis.

Tierney said on a webinar hosted by AustralianSuper – the country’s largest super fund with AUD$261 billion (US$181 billion) under management – that inflation would likely peak in most economies in the second half of this year, before gradually receding. This will allow central banks to slow the rate of interest rate hikes – or stop tightening altogether.

Once inflation has peaked, “the outlook becomes a lot brighter” as certainty improves, Tierney said.

And as the shift to more sustainable energy, agricultural, industrial and transport systems gains momentum, “things get very interesting – we will see a major structural improvement in growth.”

“The spending required in the energy transition is astonishing,” Tierney said. “It will be one of the biggest investment booms of all time – and the spending is not optional.”

This will boost private assets, including infrastructure and private equity funds that are positioned for the transition, he added.

In a recent report, BlackRock, the world’s largest asset manager, said there were opportunities for investors in commodities as the transition to clean energy accelerates.

“Demand for some transition-critical minerals is expected to grow quickly,” BlackRock said.

Minerals needed in the transition include lithium, cobalt, copper and nickel.

Meanwhile, in the financial year to June 30, AustralianSuper recorded its first investment loss since the global financial crisis, with the group’s balanced option shedding 2.7%.

The fund has been shifting to a more defensive strategy, with higher allocations towards fixed income, real estate and private assets.

Nevertheless, Chief Investment Officer Mark Delaney said in a recent statement that market volatility was creating new investment opportunities.

“AustralianSuper is actively looking for investment opportunities that have been mispriced by the market in the short term, while also making new investments where we see long-term value.”