Australia’s Future Fund reported a 4.8% investment return for its fiscal year ended June 30, lifting the value of its portfolio to A$122.8 billion ($91.1 billion).
The Melbourne-based sovereign wealth fund’s gain for the quarter ended June 30, meanwhile, came to 4.6%.
For the first time since its launch in May 2006, Future Fund was able to report a 10-year annualized return — 7.7% — with investment gains over that period exceeding the A$60.5 billion in initial government contributions.
Those returns exceeded the sovereign wealth fund’s mandated target of real gains of 4.5% to 5.5% above domestic consumer price inflation, which came to 6.9% for the decade.
Peter Costello, chairman of the Future Fund board, at a press briefing Thursday, called the results “pleasing” for the initial 10-year span.
Mr. Costello quickly noted that current market and economic conditions promise more difficult times ahead, which will likely test the second piece of the sovereign wealth fund’s mandate, which is to deliver those target returns without taking “excessive risk,” he said.
“In a world where 10-year bond yields are at 2% and 30-year money is just over a bit, you could get tempted into some really risky stuff if you were going out after 7% to 8%, Mr. Costello said, adding that the better part of valor in the current environment is to “just pull back a bit and see what the climate looks like.”
While that approach left the fund’s latest 4.8% gain falling short of its 5.5% target, Mr. Costello said a 10-year outlook is the appropriate time frame, and there will inevitably be periods when, “in order to avoid risk, you may be under mandate.”
David Neal, Future Fund’s managing director, said at the same press briefing, “We've been gradually reducing risk” over the past 18 months, aiming to achieve “moderately conservative positioning.”
At the end of the latest reporting period, the fund continued to keep more than a fifth of its portfolio in cash, at 21.7%, down slightly from 22.9% three months before but up from 19.5% a year before.
The sovereign wealth fund’s allocations to publicly listed equities, meanwhile, stood at 28.8% at the fiscal year close, with 15.2% in developed markets equities, 7.3% in emerging markets equities and 6.3% in Australian equities. The fund’s holdings of public equities came to 29% at the end of the prior quarter and 33.8% the year before.
In other market segments, Future Fund reported allocations of 13.7% hedge funds; 11.6% debt securities, predominantly private lending; 10.4% private equity; 7% property; and 6.7% infrastructure and timberland.
At the end of the prior quarter, those allocations were 12.7% hedge funds, 11.3% debt securities, 9.8% private equity, 7.1% property, and 7.1% for infrastructure and timberland. At the close of the previous fiscal year, the corresponding figures were 12.7% hedge funds, 9.8% debt securities, 10.8% private equity, 6% property, and 7.5% infrastructure and timberland.