Australia’s Future Fund, Melbourne, on Friday reported a 0.9% drop in the value of its investment portfolio for the quarter ended March 31, to A$117.4 billion ($90 billion).
Future Fund’s investment team continues to expect lower prospective returns from risk assets, which has left the fund taking “less risk … than we would under more normal circumstances,” said Peter Costello, the sovereign wealth fund’s chairman, in a news release.
As of March 31, the fund’s allocations to developed markets equities stood at 15.3% of the portfolio, down from 17.2% three months earlier, while cash holdings jumped to 22.9% — up 2.3 percentage points from the previous quarter.
That marked Future Fund’s highest cash holdings since the fiscal year ended June 30, 2010 — when the recently launched fund’s deployment of cash contributions from Australia’s government saw cash plunge to 13% of the portfolio from 41%.
Mr. Costello cited in the news release Future Fund’s belief that monetary authorities have “less flexibility now to respond to future weakness” as contributing to its more cautious stance — in line with the sovereign wealth fund’s prime objectives of “both growing and protecting our capital in the long term.”
Future Fund executives reiterated that the fund’s positioning allows it to play offense as well as defense, with David Neal, the sovereign wealth fund’s managing director, noting in the news release that “should expected risk-adjusted returns move to more attractive levels, we are well positioned to increase our exposure to risk assets.”
For the 12 months ended March 31, Future Fund’s 0.4% return trailed its 6.1% target return of CPI plus 4.5 percentage points, even as its three-year annualized return of 11.3% remained comfortably ahead of its 6.4% target.
In other asset categories, the sovereign wealth fund’s allocations to emerging markets equities, Australian equities and infrastructure and timberland remained unchanged from the prior quarter at 7.3%, 6.5% and 7.1% respectively.
Allocations to hedge funds edged up to 12.7%, from 12.6%, while property claimed a 7.1% chunk of the portfolio, up from 6.5%.
Private equity, meanwhile, ended the quarter with 9.8% of overall allocations, down from 10.4% three months before, and debt securities — predominantly composed of private lending opportunities — fell to 11.3%, from 11.8%.
