Last month, star hedge fund manager Greg Coffey predicted an end to the decade-long rally in asset prices.

Others to have expressed concern include billionaire George Soros and London-based hedge fund manager Crispin Odey.

Another respected fund manager concerned about Fed tightening is Hamish Douglass, who told Chanticleer he will be building his cash position in preparation for Fed tightening over the next 24 months.

Cash in the $12 billion Magellan Global Fund is currently 18 per cent of funds under management.

"I am not bearish – I just think that the Fed usually rings the bell for the end of the cycle," he said. Arsineh Houspian/Fairfax Media

Delaney says it is hard to predict how much the Fed will tighten. The actual amount of tightening will depend upon "how the US inflation numbers go".

"I don't think the Fed's objective is to cause a recession," Delaney says.

"But it's very hard to position through the adjustment when rates start to rise."


Double-digit returns

At June 30, AustralianSuper's balanced fund had the following asset allocation: international equities 37 per cent, Australian equities 25 per cent, infrastructure 11 per cent, property 7 per cent, cash 8 per cent, high-yield credit 5 per cent, private equity 3.7 per cent, fixed income 3 per cent.

The balanced fund's return for the year to June was 11.08 per cent, which marks the fifth year in six that AustralianSuper's balanced option has achieved double-digit returns.

The balanced fund is up 65 per cent over the past five years and up 130 per cent since 2007.

Delaney said cutting the fund's exposure to equities could be done without necessarily selling down stocks and fund exposures thanks to growth in share prices and net fund cash inflows.

In fiscal 2018, AustralianSuper's total cash inflow was $9.2 billion, up from $3.6 billion in 2012.

The performance of AustralianSuper's asset classes was as follows in 2018: private equity 17.6 per cent, international equities 16.3 per cent, Australian equities 13.7 per cent, infrastructure 12.2 per cent, high yield credit 8.4 per cent, property 8.1 per cent, fixed income 2.8 per cent and cash 2 per cent. About 4 per cent of the return from international equities can be attributable to weakness in the Australian dollar.

Delaney says the AustralianSuper international equities portfolio is all actively managed by fund managers whereas a large proportion of the Australian portfolio is in passive strategies.


He says international equities is the largest exposure in the balanced fund because it provides investment choices not available in other asset classes. "It is the largest market in the world," Delaney said.

'More direct stakes'

Delaney said AustralianSuper had done extremely well out of private equity because not only did it invest in the best funds in the United States it also was able to invest alongside these private equity investors with its own in-principle investments.

A classic example of this strategy at work is Healthscope where AustralianSuper is bidding for control of the company alongside Ben Gray's BGH Group.

He said the Healthscope situation was "still a live deal".

"As we become larger we are looking to have larger and more direct stakes in property, infrastructure and private equity," he said.

Delaney bidding for Healthscope was part of the evolution of AustralianSuper's investment model, which had changed several times since he became CIO in 2000.

He rejected the suggestion that there was a conflict of interest between AustralianSuper's role as a shareholder in Healthscope and its role as a partner to BGH in bidding for control of the company.

"At all times we have to manage our responsibility and very importantly manage our assets in the interest of our members and within the expectations of society," he said.

"Our objective is to buy a larger stake in we think is a very good long term investment."

Tony Boyd