(February 3, 2014) — The $96.5 billion Australian sovereign wealth fund has outlined its mission to enlarge the “tangible” allocation in its portfolio, cutting exposure to listed equities, cash, and alternatives.
In its portfolio round-up of 2013, the Future Fund’s executive outlined plans to turn its current allocation into a “mature portfolio”. In a bar chart, it showed this transition would mean a reduction to various previously core asset classes and an increase to just real assets.
The move would expand the allocation to real assets from a fraction over 10% to just under 20%, and take a larger stake in real assets than it says the “Typical Super Fund” would hold. In previous documents, the fund has referred to property, infrastructure, and timberland as falling into this category.
In its annual report for 2012, the fund said its target “tangible” allocation for 2014 was 16%. Today’s announcement projects further increases in the future. It also said that the benchmark for this section of the portfolio was the consumer price index plus 5%.
Alternative asset classes are set for reduction under the Future Fund’s plans, with a 19% allocation in 2012 earmarked to be reduced to 16% this year. Today’s announcement saw alternatives already cut to 14% with around another two percentage points’ reduction due to fall in with the mature portfolio.
The Future Fund determines alternative assets as “Skill-based absolute return strategies and other risk premia providing diversity of return streams,” and does not include private equity or real assets under that banner.
In August last year, Future Fund CIO David Neal told the Australian Financial Review: “We are not in bubble territory. The market doesn’t feel frothy or bubbly.” Neal was defending criticism of the price paid for a stake in Perth airport earlier in the year.
Debt and private equity holdings look set to remain at current allocations.
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