Future Fund reduces property exposure

But the Australian sovereign wealth fund grew to $96.5bn after increasing its private equity and infrastructure investments.

Australia’s sovereign wealth fund, the Future Fund, reduced its exposure to property in every quarter of 2016, according to its latest portfolio update released Tuesday.

The percentage allocation to property was reduced to 6.2 percent in the final quarter from 6.5 percent in the previous quarter ending September, 2016. And from 7.1 percent allocation to the asset class as of March, it was reduced to 7 percent in the next quarter. A$7.9 billion ($5.97 billion; €5.53 billion) was invested in property as of December 31, 2016.
Yet, the Future Fund’s total assets grew to A$127.7 billion as of December 31, 2016. In the final quarter of 2016, the Future Fund increased its allocations to private equity and infrastructure.

The investor also recorded investment returns of 7.8 percent in 2016, beating its target returns of 6 percent. The Future Fund’s fourth quarter investment returns at 2.4 percent were also higher than the 1.7 percent return target.

Commenting on the fund’s overall performance David Neal, managing director, said in the statement that given the uncertain and challenging outlook for investment returns, the fund is focused on maintaining its discipline to “only take risk where it is adequately rewarded.”

“Over the quarter we deployed capital into our private equity program, primarily through co-investments in venture capital and growth. Our cash allocation has reduced largely due to the fall in Australian dollar against the US dollar over the period. We also reached financial close on the Port of Melbourne transaction during the quarter, which is reflected in our infrastructure allocation,” he said.

However, the Future Fund’s executives also acknowledged how the global market outlook could affect future investment returns.

“While global equity markets have strengthened over recent months, uncertainty regarding global monetary policy and a range of geopolitical factors remains. We maintain our long-held view that we see a challenging investment environment ahead with elevated risks and lower prospective returns than previous years,” said Peter Costello, chairman of the Future Fund Board of Guardians.

According to multiple Australian news reports, the Future Fund executives said in the media briefing that they have called on the government to review and reconsider its 4.5 percent return target. According to the 2016 annual report, the Future Fund has a mandate to generate a return of 4.5 to 5.5 percent above Australian CPI over the long term while taking “acceptable but not excessive risk”.

“We think it was the proper mandate for the last ten years but we think needs revisiting for the next ten years,” Costello told the Australian Financial Review.