A$400bn Australian pension giant grows bearish on stocks over AI

Australia’s biggest pension fund is stepping back from global stocks next year, and it is doing it with a straight face because the AI rush in the US market is finally flashing warning signs.

John Normand, who runs investment strategy at the A$400bn AustralianSuper, said the fund is preparing to cut its exposure to public equities after watching valuations climb far beyond their historical lines.

He also pointed to the sharp rise in leverage used to finance AI projects and the fast flow of fundraising through deals, venture rounds and public listings.

Normand said the shift is coming because the AI cycle is reaching a late stage while the Federal Reserve is expected to start tightening in 2027, which he sees as a rough mix for stocks.

He made these comments at a time when the Nasdaq Composite has climbed about 19 percent this year, following jumps of 43 percent and 29 percent in the last two years. Investors across the market have been whispering that the huge spending on AI may have pushed several tech names into levels that no one can call healthy.

And Normand is not ignoring the numbers. Nvidia has doubled from its April low after President Donald Trump rolled out his “liberation day” tariff plan, and the stock is still up more than 30 percent for the year with a price-to-earnings ratio of 43. Alphabet has surged roughly 60 percent and trades around 30 times earnings.

Watching the shift in global tech exposure

Normand said the world’s major stock indices are now ruled by US names, especially Big Tech and AI names, with the Magnificent Seven alone making up around one-quarter of the MSCI World index.

Inside AustralianSuper’s own book, international equities remain its biggest overweight position at 3 percentage points above its benchmark. But Normand said he has already started to adjust the fund’s overseas equity exposure since October by adding more listed infrastructure.

He said he does not see AI stocks sitting in a bubble yet, but the risk is rising fast enough for him to take action now instead of waiting for a blow-up.

Other large pension funds are moving in the same direction. Several schemes in the UK have started cutting their positions in US equities because they are uneasy about the market’s growing dependence on a small cluster of megacap tech names.

Some funds are shifting to new regions, while others are adding ways to protect their portfolios from sudden drops. John Graham, the chief executive of Canada’s CPPIB, said he is “worried about the concentration risk” in US stocks and admitted that the C$777.5bn fund is “knowingly underweight” AI in its American allocation.

Preparing for private equity and pricing risk in bonds

Normand said he expects to increase AustralianSuper’s exposure to private equity going into 2026. He said higher interest rates in recent years slowed dealmaking, reduced the cash returned to investors and pushed many players to reduce commitments.

He thinks 2026 could mark a turning point, saying, “I think next year will be the year where by the end of 2026 PE will deliver more than public equities and that’ll be a big change.” Private equity firms raised only $592bn in the 12 months to June, their weakest result in seven years.

He also warned about what he sees as an “underlying vulnerability” in the bond market. Investors, he said, are pricing in only one quarter-point rate hike from the Fed in 2027, but past cycles show the central bank often raises rates by more than that after easing.

Normand said that when the market adjusts, the most expensive assets will take the hardest hit. He said these pricey areas “tend to be centered around tech sector and AI theme – it doesn’t mean this is the end of the story, it just means we have to be mindful of the risks that we manage.”

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