Future Fund’s RE value dips for second consecutive quarter

The A$73 billion Australian state fund has reported two consecutive dips in the value of its real estate portfolio, although it insists it remains committed to building out is ‘tangible assets’, which include real estate, to represent 15 percent of its entire assets.

Australia’s Future Fund has reported the second consecutive quarterly drop in value of its real estate, with its portfolio dipping to A$4.38 billion (€3.56 billion; $4.64 billion) from A$4.61 billion in the last three months of 2011.

The state fund, established in 2006 to assist the Australian government in meeting the cost of public sector superannuation liabilities, said in its quarterly portfolio update that its real estate assets now reflected 6 percent of total assets, as at 31 December last year. That was down 0.3 percent from its previous report which revealed the value of the assets to 30 September last year. Then Future Fund revealed its real estate portfolio had fallen in value by about A$200 million, a 0.2 percent decline in percentgae of its total assets from the quarter before that.

Future Fund did not directly provide a reason for the consecutive dips in valuation when approached by PERE, although Will Hetherton, head of public affairs at Future Fund, said the state fund was “continuing to build out our programme” and that, by 30 June this year, it is expected to have 15 percent of its portfolio invested in ‘tangible assets’, which includes real estate alongside infrastructure and timberland investments. 

According to the latest portfolio update, real estate, infrastructure and timberland assets combined account for A$8.52 billion of Future Fund’s A$73.07 billion, or 11.7 percent, of total assets under management.

Hetherton also pointed to Future Fund’s strategy of having 6.5 percent of the portfolio invested in private equity in the same timeframe, 1.2 percent shy of its current situation. Future Fund’s private equity portfolio was valued at A$3.9 billion at the end of December.

In terms of overall performance, Future Fund said that its assets had generated a return of 4.2 percent a year since its inception in 2006. Its return for 2011 was 1.6 percent although in the three months to 31 December, the portfolio returned -0.2 percent.

David Murray, chair of the Future Fund’s Board of Guardians, talked in the update of a “lengthy period of adjustment” inflicted by the ongoing global financial crisis and that the state organisation would place an emphasis on “patience” and “liquidity” going forward.

He said: “While there have been some positive signs in the US economy, underlying pressures remainand Europe continues to wrestle with debt-related challenges and the risk of recession. The prospect of a lengthy period of adjustment and subdued economic growth is generally apparent as signalled in global and domestic securities markets.”

“In this environment, the Board continues to place a premium on patience and liquidity, ensuring that the portfolio is prudently positioned to take up attractive opportunities while avoiding excessive risk.”