Australia's A$91.7 billion (US$89.3 billion) Future Fund shifted allocations to global equities and infrastructure from credit and alternative investments during the 12 months through Sept. 30, to take advantage of a changing investment landscape, fund executives said.
The portfolio enjoyed a 14.7% gain for the year, lifting annualized returns for the three- and five-year periods through Sept. 30 to 9.7% and 8.2%, respectively.
As of Sept. 30, allocations to developed markets equities accounted for 23.9% of the Future Fund's portfolio, up from 17.7% the year before, while emerging markets equities stood at 8%, up from 5.1%.
Infrastructure and timber, meanwhile, rose to 8% from 5.9%, with private equity increasing to 7.2% from 6.3%.
Asset segments seeing a decline in their share of the portfolio were debt securities, down to 12.2% from 18.7% a year before; alternative assets, which dropped to 15.2% from 17.7%; cash, at 9.6% from 11.4%; property, down to 5.6% from 6.4% and Australia equities, at 10.3%, down from 10.7%.
In a briefing Wednesday on the Melbourne-based fund's latest results, David Neal, Future Fund's chief investment officer, said credit had delivered on the promise his team anticipated following the financial crisis five years ago to deliver equity-like returns with “substantially lower risk,” but by the end of 2012 that theme was “pretty well played out.”
With central banks around the world clearly looking to take strong policy steps to boost economic growth, Mr. Neal said the balance of risks and rewards on the investment landscape pointed to more attractive risk-adjusted returns going forward from public equity markets.
Mr. Neal stressed that the Future Fund's asset allocation decisions reflect a constant review of the opportunities being offered by global markets, rather than static targets for different “buckets” that have to be filled. Such a bucket-related approach to investing in areas such as private equity is a good way to end up with a “very expensive, very average” portfolio, he said.
He added that the fund's nearly 10% cash allocation allows it to respond to the opportunities global markets present “at relatively short notice, from time to time.”
Asked whether Future Fund would bring more money management in-house, Mr. Neal said “we think a smaller team,” with a “tight culture,” while relying on a “small number of high conviction managers” and leveraging their insights and research, has yielded “very significant benefits” and will remain core to the fund's approach.
Future Fund does have some in-house capabilities, which allows it to pursue direct investments or co-financing opportunities in areas such as real estate or infrastructure.
