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Future Fund increases US property exposure

Australia’s sovereign wealth fund has increased its allocation to US direct and listed property assets to more than half its total holdings while reducing its domestic property exposure, according to its latest annual report.

Australia’s sovereign wealth fund has increased its direct and listed property investment exposure to the US and other emerging markets globally while reducing its domestic property holdings, according to its latest annual report.

As of end June this year, the Future Fund had 7 percent of its overall portfolio allocated to the property sector, up from 6 percent in 2015.

The fund also reweighted the portfolio in terms of its geographic allocation. In the past one year, around 53 percent of the total property investments were concentrated in the US, a sizeable increase from the 45 percent allocation as of end June 2015. Its emerging markets allocation also increased from 2 percent to 8 percent in the last one year. Meanwhile Future Fund’s portfolio allocation to domestic property investments was 20 percent, a drop from the 31 percent the year before.

“Our portfolio maintains a dominant exposure to the US and Australia,” the fund said in its 2015-2016 annual report released today. “Our US portfolio has again generated a strong return driven by strong investor demand, positive economic growth leading to improving occupier fundamentals and low interest rates. Our Australian portfolio has also benefited from an uplift flowing from strong investor demand and the successful execution of asset business plans.”

In the last year, the Future Fund made new investments in the logistics and residential sector in the US in addition to investing in the retail and office sector in Europe. However, the fund also said that it continued to be more watchful outside the US and Australia, especially in the light of macro uncertainty.

“Uncertainty stemming from Brexit has influenced us to lighten off in UK and Europe and now leads us to patiently search for value in these markets. Exposure to Asia outside Australia is modest, limited by our ability to find value and appropriate ways to access the market,” it said.

In terms of sectoral allocation, 32 percent of the overall property investments were made in the retail sector following by a 26 percent allocation to office and 18 percent to residential.

Overall, the property market continues to be driven by strong investor demand for assets with a stable income return; and there is consistent occupier demand in most markets, the fund noted in the report.

“Investors searching for yield continue to provide a tailwind for our existing portfolio reflected in a firming of valuations. It also has allowed us to accelerate the business plans for our assets. We continue to encourage our managers and partners to sell assets once they have executed their plan to take advantage of the positive market conditions. This is demonstrated by the successful sale of assets in the UK, Europe, US and Australia in 2015-2016.”

The total assets managed by the Future Fund are valued at around A$140 billion ($106 billion; €97 billion).