Australia's A$117 billion ($90.9 billion) Future Fund is holding more cash this year, as the hunt for value in global markets becomes increasingly challenging.
“We've always thought quite hard and quite deeply about the option value of cash,” concluding that cash doesn't have to be a “drag ... on your portfolio, provided you have a process in place and a governance in place” to deploy it when the time is right, David Neal, the Future Fund's managing director, said in an April 28 interview.
The topic is relevant to a central debate among asset owners over whether the deluge of central bank liquidity inflating market valuations now will succeed in returning the global economy to sustainable growth.
Earlier on April 28, Future Fund officials revealed that the Melbourne-based sovereign wealth fund's cash holdings surged almost A$4 billion during the quarter ended March 31, boosting cash to 15.2% of total assets from 12.8% at the end of the prior quarter. Six months before, 9.8% of the fund's portfolio had been in cash.
For the sovereign wealth fund, which started investing in May 2006, it was the highest allocation to cash since the fiscal year ended June 30, 2010, when the fund's continued deployment of A$60.5 billion in contributions received from the Australian government saw its cash holdings plunge to 13% of the portfolio from 41%.
“In a world where stocks, and especially bonds, are not cheap, holding a bit more cash in reserve now seems prudent,” said Aaron Costello, a Singapore-based managing director on the global research team of investment consultant Cambridge Associates Asia Pte. Ltd.
“That is what we're advising clients, and anecdotally that is what we see investors doing” now in the Asia-Pacific region,” he said.