A strong equity performance in this year’s first quarter allowed the Australia Future Fund’s assets to recover from its December losses, growing to A$154 billion ($108 billion).
The fund bounced back 5% from the dismal showing in 2018’s final quarter, when it lost 1.2%, thawing the fund’s winter chill. ‘The last quarter showed strong returns in public equity markets, no doubt influenced by the US Federal Reserve’s decision to hold interest rates and easing US-China trade tensions,” said Peter Costello, who chairs the fund’s Board of Guardians.
That said, he added that the global economy will face structural challenges, including demographic shifts and high debt levels.
“Long-term real yields remain very low, indeed negative, in a number of major economies, which implies that long-term prospective returns will be lower relative to history,” he said.
Overall, the sovereign wealth fund’s diversification has been an excellent long-term strategy.. Not only has the organization’s 10.4% 10-year returns trumped its 6.5% benchmark, but all across its various fund portfolios.
“The Future Fund continues to perform strongly against its investment mandate, delivering strong long-term returns without excessive risk,” said David Neal, the fund’s chief executive officer, who highlighted its work on the medical research portfolio, worth $A9.6 billion on March 31.
The portfolio, which holds a large amount in cash (33%), has beaten all of its benchmarks since its 2015 inception. It has returned 3.7% and 4.9% over the one- and three-year period, and 4% all-time (all benchmarks for these periods are 3%).
The long-only strategy allocates the rest of the assets to debt securities (24.1%), alternatives (17.2%), global equities (10.4% developed markets, 6% emerging), Australian equities (4.3%), private equity (3.1%), property (1.7%), and infrastructure (0.1%). That is expected to be further diversified over time, according to the Future Fund.
“As we navigate a complex investment environment, we are focused on constructing the most efficient portfolio possible for generating strong long-term returns,” said Neal.
Raphael Arndt, the Future Fund’s chief investment officer, was unable to be reached for comment.
Related Stories:
Australia is Killing It in the Long Game
Future Fund Gets a New Deputy CIO
Future Fund Names New Private Equity Head
Tags: Australia, Australia Future Fund, Medical Research, Returns, Sovereign Wealth Fund