Future Fund dials back US economy exposure amid Donald Trump risk: chair Greg Combet

Future Fund chair Greg Combet said the Trump presidency had hiked risks for the US economy. ‘Investor doubt has been sown.’

US President Donald Trump speaks to reporters during the Group of Seven Summit. Picture: AFP

The Future Fund, Australia’s $300bn sovereign wealth fund, will cut its US exposure in response to fears President Donald Trump has added “layers of volatility and uncertainty” to the world’s biggest economy.

Future Fund chair Greg Combet pointed to a series of controversial calls made by Washington including its decision to review AUKUS and its global tariff regime as proof that Australia’s traditional economic and security relationships with the US are inherently more risky.

The “election of Donald Trump as US President last year has added layers of volatility and uncertainty,” Mr Combet told a business lunch in Sydney on Tuesday. “It seems unlikely that even dramatic reversals of Trump policies would engender a return to a ‘business as usual’ approach from long term investors now that investor doubt has been sown.”

The US dollar, the global reserve currency, has fallen 10 per cent this year against major currencies and its depreciation now appears to be a Trump administration policy objective, according to the Future Fund chair.

Greg Combet Picture: NewsWire / Martin Ollman

“For the Future Fund these are matters of material significance to our portfolio, especially

given that the majority of our physical assets are denominated in US dollars,” he said.

Changes made by the Future Fund to protect against elevated risks in the US economy include greater exposure to the euro and Japanese yen along with buying gold, regarded as a safe haven. It has also boosted investment in Australian assets that provide hedges against inflation, higher interest rates and currency movements.

“We are considering the need to build the physical portfolio in a more diversified way,” Mr Combet, a former ACTU boss, said. “While there are still likely to be compelling opportunities in US dollar denominated asset markets, we will need to devote more time and resources to investigating other markets including Japan and the EU.”

Mr Combet said he also wants to elevate a focus on climate risks and opportunities as part of his role as chair, succeeding Peter Costello, and would execute a plan over the next few years to embed the discipline into its strategy.

“This is an important addition to our investment beliefs. This belief is anchored in the

premise that integrating these into our decision-making processes is essential for

enhancing risk-adjusted long-term financial returns. It also works to safeguard trust and

reputation in the eyes of our stakeholders,” Mr Combet said.

“Because the Fund invests through external managers globally, often in pooled funds, this

plan must include careful work to further extend the way in which we work with our

investment managers to consider environmental, social and governance and climate factors.”

Australia’s most powerful super funds have been considering walking back their climate targets amid a growing political and corporate backlash against ESG and DEI.

The Future Fund has also kicked off a review of both immediate and long-term scenarios under a Trump administration, citing broader structural shifts in deglobalisation, greater geopolitical tensions, and multi-polarity in world power.

“We certainly do not think the dynamics I have spoken of will pass and return the world to the norms of yesteryear,” Mr Combet said.

French President Emmanuel Macron, from left, Canada's Prime Minister Mark Carney and U.S. President Donald Trump on Monday. (Suzanne Plunkett/Pool Photo via AP)

The Canberra-backed fund delivered a return of 7.9 per cent for the past year. Returns for the period to the end of March were delivered in the face of some of the most volatile investment markets since the Covid-19 pandemic and marked by the early warning shots of President Trump’s trade war.

The allocation of the Future Fund’s portfolio since 2022 reflects a sharper exposure to global developed market equities, including non-US markets. It also lifted infrastructure exposure, while cash holdings fell from more than 12 per cent of the portfolio to less than 3 per cent.

Treasurer Jim Chalmers in November overhauled the investment mandate of the Future Fund to drive ­capital into Labor’s ­affordable housing, green energy projects and critical infrastructure agendas, in a major shift in the role of the sovereign wealth fund established by the Howard government nearly two decades ago.

Mr Combet told the lunch that it was “entirely a matter for the board to determine whether we invest in these areas of national priority and on what terms. The areas of national priority require significant capital, a long-term view, and address pressing domestic economic needs. Importantly, they align with our investment strategy.”

Inaugural Future Fund chair David Murray told The Australian any ­investment mandate changes to Australia’s sovereign wealth fund will increase its risk profile and ­potentially cut long-term returns.