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Sovereign Wealth Funds

Future Fund reports 9.3% fiscal-year gain

Australia's Future Fund on Wednesday reported continued gains in its fiscal year ended June 30, even as executives of the sovereign wealth fund warned that the long-running party in global financial markets could be coming to an end.

As of June 30, the fund's investment portfolio stood at A$145.8 billion ($107.7 billion), with a 3.6% return for the latest quarter and 9.3% for the year.

CEO David Neal noted in a news release that over the fiscal year the fund added risk to take advantage of "the short-term outlook (for) a continuing period of sustained synchronized growth." But emerging risks — from inflationary pressures and rising interest rates globally — should lead to downward pressure on asset prices, he warned.

In a Wednesday morning briefing on the latest results, Peter Costello, board chairman, said the beneficial results of the global upswing have been powered by "historically low interest rates (and) enormous liquidity … and as that unwinds you would expect a correction" in asset prices.

That backdrop has left the fund focused on maintaining high levels of flexibility to take advantage of market declines, as and when they occur, said Mr. Neal.

Over the most recent three months, the fund trimmed its allocations to public equities while adding incrementally to its cash holdings.

The Future Fund reported a 32.2% weighting to public equities, down from 33.3% as of March 31, with 18.2% in developed market equities, 7.3% in emerging markets and 6.7% in Australian equities.

Allocations to cash stood at 15.1%, up slightly from 14.8% at the close of the prior quarter although still well below the 21% level of a year ago.

Hedge funds, meanwhile, claimed 15.4% of the portfolio, followed by 14.1% in private equity, 8.9% in debt securities, 8% in infrastructure and timberland, and 6.4% in property.

Three months earlier, the fund reported allocations of 15.5% to hedge funds, 12.8% private equity, 10% debt securities, 7.8% infrastructure and timberland, and 5.8% property.