The Future Fund’s total funds under management stood at $252 billion at the end of 2021, with assets climbing to $203.6 billion following returns of 19.1 per cent, well above the 7.5 per cent target.
During the December quarter, the fund returned 2.2 per cent, almost double the 1.2 per cent it clocked in the September quarter, culminating in a 3.4 per cent return for the financial year to date.
“The Fund has been carefully positioned to successfully navigate the challenges thrown up by the COVID-19 pandemic over the last few years and it has delivered exceptional returns,” said Future Fund board of guardians chair Peter Costello.
Over the past 10 years, the fund has delivered a return of 10.8 per cent p.a. against a target of 6.2 per cent p.a., with returns adding over $143 billion to the initial $60.5 billion contribution from the government in 2006.
Future Fund chief executive Dr Raphael Arndt said that the portfolio continued to be positioned with a “neutral risk setting” amid the current investment environment.
“However, we have taken some risk off, particularly in the listed equities program, given the run-up in prices and our view is that risk is likely to be less well-rewarded in future,” he said.
Dr Arndt noted that the Future Fund would be taking action in response to anticipated lower returns in the future.
“We are seeking out opportunities to access value from less liquid and more skill-based investments and working our relationships with partners to identify more focused opportunities both to secure returns and to manage risk,” he said.
“Looking ahead we remain focused on sustaining a portfolio that is as robust as possible to a range of scenarios, and that balances our risk and return objectives.”
The Future Fund’s cash allocation rose to 16.8 per cent in the December quarter, up from 15.0 per cent in the September quarter and 13.2 per cent in June.
Compared to the previous quarter, the allocation to Australian equities decreased from 8.1 per cent to 7.6 per cent, while the allocation to global equities fell from 16.6 per cent to 15.7 per cent for developed markets and from 8.3 per cent to 7.7 per cent for emerging markets.
On the outlook for investment, Mr Costello said the biggest challenges were rising inflation and interest rates and the impact they will have on asset prices.
“We have come through a period of exceptional stimulation through monetary policy. This policy will have to come to an end. The adjustment will be significant,” he said.
“The Board’s focus is on positioning the portfolio to be resilient to an environment of greater uncertainty and we expect future returns to be lower than in recent years.”
