Australia’s sovereign wealth fund has doubled its cash position in the past 12 months in the face of increased global market volatility after a stong run.
In announcing investment returns for the year to end-June 2015, the A$117 billion ($82 billion) Future Fund signalled its concerns about the sustainability of those returns.
The investment portfolio returned 15.4% in the latest 12-mnth period against a 6% target return. Over five years the return stands at 11.9%, and 8% since 2006 inception.
“We have taken advantage of strong markets to reduce our listed equities exposure as well as to sell out of a number of private market positions that had delivered well," said managing director David Neal. "Overall we have been moderately reducing total portfolio risk.”
The private market positions include domestic property holdings that have benefitted from the real estate boom in Australia.
The Future Fund generated investment returns of A$15.6 billion for the 2014/15 financial year, taking the value of the fund to A$117.22 billion.
Since 2006 when the Future Fund was established, investments have added A$56.7 billion to the original asset base pledged from government funds, which were valued at A$60 billion.
The portfolio’s exposure to listed equities, both Australian and global, was 42% in the 2014 financial results. It was expected to remain at this level, but is down to 33.8% in the figures to June 30 this year. Exposure to private equity has risen slightly as a proportion of the fund, from 8.3% to 10.8%.
Target cash allocation for this year was 10%, but the selling down of assets has raised the cash level just short of 20%. To put this in perspective, in 2013 the cash level was 5.8% and in 2014 it was 11.2%.
Chairman of the fund’s board of guardians, Peter Costello, said the prolonged period of high market returns could not be sustained indefinitely.
“Enormous stimulatory measures pursued by central banks in recent years have helped to drive strong rises in asset prices and the portfolio has been structured and actively managed to capture these gains," he stated.
"However, stimulatory policy settings cannot be sustained indefinitely and it seems likely that generally returns in the future will be lower than in recent years.”