Aware Super has found that around 15 per cent of the assets in its high-growth option are exposed to the AI thematic – a level of concentration that head of investment strategy Michael Winchester is comfortable with for now, which he admits means the $205 billion fund must be “really discerning” about where it allocates in the future.

The nation’s third-largest super fund began taking stock of its holdings as it grew wary of the so-called “cross exposure” to AI in the portfolio; namely, the proliferation of AI opportunities across not only global equities, but also credit, property, infrastructure and virtually all major asset classes.

“We realised that this was a concentration that wasn’t clearly defined by asset class boundaries, and so we wanted to figure out just what our total exposure was,” Winchester tells Investment Magazine in an interview from its Sydney office.

“But once we did that, we realised it’s not just as simple as adding up all the dollars, because the nature of your exposures is different.”

The challenge has two aspects. For one, exposures to the same theme across asset classes can carry different risk profiles depending on their various “attachment points” and positions in the capital structure. And two, particularly in private markets, assets captured under the AI thematic sit in different sectors, regions and have different business models, which means their sensitivity to the AI theme is far from uniform, Winchester says. A simple dollar aggregation would have failed to represent the nuance.

The 15 per cent number is just Aware’s first attempt at the analysis, which focused on companies with operations directly tied to AI and which are held through the high-growth option that represents half of the fund’s assets. On a whole-of-portfolio level, Winchester says the figure is likely even larger.

“We didn’t add resources, for example, to that group, but I think it’s likely that a key reason for the really strong performance in the resources sector has been this build-out of infrastructure associated with AI, so in some ways you could make the case that resources is also an AI exposure,” he says.

Winchester is a firm believer that AI will eventually touch on all aspects of our life just like the internet but, having witnessed massive capex from AI companies, he says that potential needs to be translated into concrete returns – fast.

“We were seeing the increase in concentration in the listed market, and then seeing a lot of the new opportunities in the pipeline in the private market side also had some kind of linkage to AI. So we started asking ourselves, well, how much is too much?” he says.

“I’m comfortable with the level of exposure today, but at some point we’re going to hit a threshold where we’re going to need to decide… [if] in fact we should prioritise something that might even have a lower expected return [to diversify from AI].”

Liquid alts earn their keep

Apart from overseeing Aware’s asset allocation and retirement investment strategy, another part of Winchester’s remit is managing the liquid alternatives portfolio which, while only a single-digit allocation, has a significant role in portfolio resilience.

The liquid alternatives portfolio is divided into growth and defensive strategies with respective roles of driving uncorrelated alpha and cushioning volatility.

On the defensive side, Aware invests in trend-following / CTAs and long volatility hedge funds with the primary goal of protecting the pension portfolio from sequencing risks. CTAs are designed to perform well during market extremes and long volatility – a specialist area where the fund has been working with the same manager for 12 years – are designed to take advantage of mispriced market risks. Together they represent 4 per cent of the conservative balanced pension portfolio.

“It’s performed really well over the long-term during periods of extreme volatility. For example, during the first three months of COVID [from the start of 2020 to the end of March that year], this collection of strategies was up 50 per cent,” Winchester says.

“The strategy is really impactful – you only need a small allocation to really move the dial on the risk at the investment option level.

“Because of – or in part because of them – the risk-adjusted returns on our conservative balance pension option are really very strong.”

The growth strategies, meanwhile, include quantitative and discretionary global macro managers. The roster has remained small – within the range of three to six managers – but they play an important role in helping Aware’s internal macro team sharpen active asset allocation capabilities.

“We have an internal macro team whose job is to deliver outperformance. They invest across global markets, across currencies, interest rates, equities, and they trade in overlay accounts at the top of the fund.

“By partnering with these global macro managers, they’re able to help us think about how we can improve our strategies, how we can uplift our internal capability to deliver that alpha stream of the top of house.

“You want to partner with someone who’s genuinely interested in sharing their IP and helping our internal teams improve. Because we’re a large fund, a small allocation goes a long way and you can still allocate a reasonable sum of money to a manager that makes it economically worthwhile for them to partner with you.”

Tools like liquid alternatives will always play an important role in dealing with emerging portfolio risks, be they AI concentration, tariff or geopolitical risks, Winchester says.

“History has shown that no matter what the source of volatility, the defensive liquid alt strategy has really helped… it wasn’t around during the global financial crisis, but I’m sure it would have performed well then as well.

“I’m quite happy never to see another one of those [crisis] again, but we expect that our pension members would experience a lot less volatility during those types of market environments.”

Aware Super’s accumulation high growth option returned 8.54 per cent in FY2026 and 9 per cent per annum over a decade. Its retirement income conservative balanced option, which is the choice for the majority of retired members, returned 6.24 in the financial year and 7.05 per cent per annum over a decade.