Future Fund not expected to match last year's 14% returns

Australia's $168 billion sovereign wealth fund returned 14.3% last year, while warning that future returns will be lower.

Future Fund left its allocations largely unchanged during the year, only taking away marginally from most asset classes to increase its cash position from about 11.4% at last quarter to 13.7% at the end of December.

Its asset allocation at December end sat at:  Global equities (19% in developed markets and 10.2% in emerging markets), private equity (14.9%), cash (13.7%), alternatives (13.4%), debt securities (8.6%), infrastructure and timberland (7%), Aussie equities (6.8%), and property (6.3%).

Future Fund's 10-year returns beat the government-set benchmark target of 6.4% per year.

However, they are now slightly below the 10% mark and sit at 9.9%.

The fund also said that it acquired a "material interest" in Canberra Data Centres at the end of 2019.

"Equity markets performed strongly in the last quarter, supported by easy monetary policy. It is important to assess which asset values are supported by earnings as opposed to those supported merely by cheap money. Looking forward, a number of risks remain," Future Fund chair Peter Costello said in a statement.

"Global debt levels and demographic pressures will shape economies and markets over the medium to long term. We maintain our long-held view that prospective returns will be lower than recent returns."

Future Fund chief executive David Neal said the fund has been carefully positioning the portfolio to navigate the challenging investment environment.

"We are maintaining an average level of risk in the portfolio, sitting around the middle of the expected range. We continue to prioritise portfolio flexibility to ensure we can adjust the portfolio quickly to respond to emerging opportunities and risks," Neal said.

This article was first published by Financial Standard

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