Australia's Future Fund, Melbourne, delivered a 9.1% annual return for the financial year that ended on June 30, bringing its total asset value to A$224.9 billion ($150 billion).
The sovereign wealth fund increased its weighting to listed equities, which were a main return driver for risk assets, said Chief Investment Officer Ben Samild in a media call on Sept. 4. Also, earlier changes made to the portfolio to increase resilience, such as holding different commodity and currency mixes, contributed to the positive returns, he said.
The fund had 10.3% of the portfolio invested in Australian equities, up from 8.6% a year earlier, 20.8% to developed market global equities up from 15.9% a year ago, and 6.2% to emerging markets, up from 5.9%.
Cash, on the other hand, fell drastically to 6.7% of the portfolio from 11.2% a year ago.
Credit, which includes both public and private credit assets, also rose to 11% from 8.6%. This was largely due to a significant allocation to high-grade public credit earlier in the year when the spread and yields were compelling considering the low-risk quality of the asset class, Samild said.
That said, private credit continues to be an important part of the portfolio and the fund continues to “seek the best risk-return opportunities within the sphere,” he said.
Asset allocation to private equity dropped to 14.5% from 16.5% because of lower distributions, Samild said. Valuations were flat and secondaries did not contribute to the fall in allocation, he said.
Real assets allocations fell slightly, with real estate investments dropping to 5.4% from 6.3% and infrastructure and timberland fell to 9.9% from 10%.
Investments in alternatives, which include hedge funds, also fell to 15.2% of the portfolio from 17% a year prior, but Samild said that hedge fund returns have been positive across the board, which is unusual for the asset class.
The fund has been building its hedge fund portfolio for 15 years and the role and structure of the asset class within the total portfolio has not changed, he said. The hedge fund portfolio is constructed in several buckets such as beta relative, market neutral, variable beta and macro strategies, all of which had strong positive returns, but the fund does not expect such a result every year, he said.
The sovereign wealth fund will continue its active approach to Japanese equities after hiring the $1.18 trillion Wellington Management to manage an active Japanese equity mandate earlier this year, Samild said.
There are inefficiencies in the Japanese market that puts investors in a good position to earn excess returns over a passive benchmark, he said.
