Future Fund smashes target with 11.5pc return in 2019 financial year

The Future Fund posts returns of 11.5pc, but chairman Peter Costello sounds a note of caution.

Peter Costello can afford to look happy. The Future Fund has easily beaten its investment target. Picture: Gary Ramage

The Future Fund has smashed its investment target for the year, adding more than $16 billion in returns as it reduced its cash holdings in favour of a higher allocation to emerging markets.

The sovereign wealth fund said returns for the 2019 financial year were 11.5 per cent, easily passing its 5.6 per cent target, despite the rise in market volatility.

Peter Costello, who established the fund in 2006 when he was federal treasurer and is currently chair of the Future Fund Board of Guardians, sounded a note of caution for investors as he handed down the results.

“US-China trade tensions and other geopolitical developments have continued to weigh on the global economy even as central banks have maintained accommodative monetary policy settings.

“The board continues to see long-term returns as unlikely to replicate the strong returns of recent years and is cautious of the risks for investors,” Mr Costello said.

Returns for year lifted the fund from $146 billion to $162.6bn.

Among the portfolio moves was a 3.2 per cent reduction in cash holdings to $19.3bn, or 11.9 per cent, down from $21.9bn.

Developed market equities increased from $26.5bn to $30bn, or 18.5 per cent of the fund’s holdings, while emerging market equities rose from $10.6bn to $16.3bn, or 10 per cent of total holdings.

Private equity investments lifted from $20.6bn to $25.7bn in the year.

Chief executive David Neal said the investment environment remained challenging.

“We are prioritising diversification and flexibility as we dynamically manage the portfolios to respond to shifting global conditions.

“We recognise the responsibility and the challenge of managing over $200bn on behalf of the commonwealth, particularly in a complex investment environment.

“Accordingly, we are investing in a range of projects to enhance our technology capability and other business processes, which will help us to sustain our strong performance into the future,” Mr Neal said.

Since 2006 when the Future Fund was established, investment returns have added $102bn to the original contributions made by the government which were $60.5bn at the time of transfer. No contributions have been made to the fund since 2008.