Published by Asia Asset Management – 25th Feb 2019
Future Fund, Australia’s sovereign wealth fund, posted its lowest return on record last year as its investments were hurt by declining stock markets and the US-China trade war, with the head of its board predicting that long-term returns will be lower than in recent years.
The fund’s 5.8% return on investments in 2018 was the least since it was established almost 13 years ago, according to figures in a recent statement posted on Future Fund’s website.
David Neal, the fund’s chief executive officer, also attributes the lower return to Future Fund’s decision to reduce risk in its portfolio.
“In 2018, we commenced work to sell around A$5 billion [US$3.57 billion] of illiquid assets in order to prepare for potentially increased volatility and to increase portfolio flexibility,” Mr. Neal says in the February 11 statement.
“With rising risks around the economic cycle and geopolitics, and generally fully valued asset prices, our portfolio construction continues to emphasise and balance diversification and flexibility and we are managing our liquidity closely,” he adds.
Looking ahead, Peter Costello, chair of the Future Fund Board of Guardians, forecasts a “challenging outlook for investors due to risks around economic growth, normalisation of interest rates and geopolitical and trade tensions”.
“The board has been carefully positioning the portfolio to pursue its long-term return objective, while navigating the volatile environment and the expectation that prospective long-term returns will be lower than in recent years,” he says in the statement.
He emphasises that the fund’s objective is “to strengthen the government’s long-term financial position by maximising returns over the long term without taking excessive risk”.
He says the fund has achieved a ten-year return of 9.7% per annum versus its 6.6% target while avoiding excessive risk. The return per annum was 7.5% over a three-year period, and 8.8% over five years.
Future Fund managed A$147 billion of assets as at December 31, 2018, with 16.3% in global equities, 15.8% in private equity, 14.6% in alternative assets, 14.5% in cash, and the balance in Australian equities, infrastructure and property.
According to the statement, investment returns have added over A$86 billion to the A$60.5 billion of government contributions to the fund since it was set up in April 2006. The government has not contributed to the fund since 2008.
