Australia's Future Fund reported a 4.9% gain for the quarter ended Dec. 31, offsetting pandemic-related losses in the first half of the year to end 2020 with a record A$170.9 billion ($130.9 billion) in assets, up 1.7% from the year before.
The latest one-year tally trailed the fund's target return of 4.4%, but annualized returns continued to exceed their three- and 10-year targets by 1.7 and 2.8 percentage points, respectively.
Sue Brake, the Melbourne-based sovereign wealth fund's chief investment officer, in a news briefing Wednesday, termed the results a "strong performance in a really turbulent year" that will force institutional investors to rethink portfolio construction.
The COVID-19 pandemic marks "the turning point to a new sort of paradigm, a multidecade change" that will challenge long-term investors to think through "the immediate fury and turbulence of what we've seen over the last 12 months" and figure out what it means, Ms. Brake said.
The investment environment "is going to be more fragile, more volatile, so that has implications for the kind of investments we like," she said, adding, "We've been pretty active in the portfolio, in terms of repositioning for this new world order or investment environment that we find ourselves in."
Among those changes, Ms. Brake noted that her team is very mindful about inflation now, even if there are no signs of price pressures at present. Over a time horizon the Future Fund cares about, "We're really interested in assets that are going to give us inflation protection," she said. She did not specify the time horizon.
As of Dec. 31, the Future Fund had 19.8% of its portfolio, or A$33.8 billion, invested in cash, up from 19.1% of the portfolio as of Sept. 30 and well above its 13.7% weighting a year earlier.
Ms. Brake said the portfolio's hefty cash weighting was aimed at maintaining flexibility, as opposed to a sign the fund is becoming more defensive.
The fund's latest combined allocation to listed equities in Australia, developed countries and emerging markets came to 32%, up from 31.7% from Sept. 30 but down from 36% a year before.
The fund reported allocations of 14.2% to hedge funds, 13.4% to private equity, 7.4% to infrastructure and timberland, 7.1% to debt securities and 6.1% to real estate.
As of Sept. 30, the fund had allocations of 15.1% to hedge funds, 14.1% to private equity, 6.9% to infrastructure and timberland, 7.5% to debt securities and 5.6% to real estate.
