Australia’s Future Fund posts record returns amid listed and private equity gains

The sovereign wealth fund has been reducing flexibility and increasing risk to the portfolio as the fund keeps a watchful eye on changes to the macro environment.
Australia’s Future Fund posts record returns amid listed and private equity gains

The Future Fund of Australia reported record 22% returns on Thursday (August 26), as listed and private equity “delivered excellent returns”, chief executive Dr Raphael Arndt said in a statement.

Returns for the year ended June 30 was 22.2%, bringing 10-year returns to 10.1%, beating its 6.1% 10-year target.

Future Fund investment returns

Equities have boosted Australian asset owners’ performance this year as global and Australian stocks continue an unprecedented rally. The S&P/ASX 100 index stood at 6,216 on Thursday (August 26), a 22.72% year-on-year increase.

Superannuation funds including AustralianSuper, Aware Super and Cbus posted 18-20% returns earlier this year, and told AsianInvestor they would remain overweight on equities.

The Future Fund has 35.8% allocated to equities for the year ended June 30, compared with 34% the previous year. Wendy Norris, deputy chief investment officer for private markets, said during a media briefing that the technology sector has done particularly well for the fund.

“We’re seeing that expressed across all the asset classes that we invest in,” she said, adding that the fund has seen a strong technology-driven theme across all aspects of the economy, driven by factors such as geopolitics and the transition to clean energy.

The fund’s 17.5% allocation to private equity also delivered strong returns, she said.

“We do a lot of work on the portfolio over the last couple of years to really reposition it to take advantage of the strength in the market. The growth, buyout and venture books have done particularly well. But even the general, broader buyout market - it's been a strong market across all the different aspects of private equity,” she said.


Chief investment officer Sue Brake told AsianInvestor in June that the fund relied on flexibility to adapt to the effects Covid-19 has had on capital markets.

Now, however, the fund is adjusting its strategy to reduce flexibility and increase its risk appetite, Norris said.

“You will see that in the reduced cashback that we've got over the year… And you're seeing a little bit higher exposure to equities, to private equity to property. So we're taking that little bit of reduced flexibility in deploying it across a range of our assets,” she said.

“The objective is that really to position the portfolio to be able to capture a bit more return across the whole portfolio, as we look into a market environment where we are capturing return will be slightly harder than it had been.”

Two recent high profile infrastructure investments reflect the fund’s more inflexible approach, she added, referring to its recent acquisition of Tilt Renewables and a minority holding for Telstra InfraCo Towers along with several other institutional investors.

The fund had 7.4% allocated to infrastructure and timberland compared with 7.1% last year.

Future Fund asset allocation

The infrastructure investments are also an example of an adjusted risk appetite “to be a little higher than it was a couple of years ago”, she said.

“We have made a modest increase in risk exposure across the whole fund. But we are not led by an equities risk appetite increase when we made that decision. We’re thinking about the whole of the macro environment that we say the changes that we're seeing in across all the macro and geopolitical influences,” she said.

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