Future Fund returns 4.5pc in March quarter, assets swell to $179bn

Sovereign fund’s year-to-date return is in double digits as assets reach a record $179bn, but it remains cautious about the outlook.

Former treasurer, and chairman of the Future Fund, Peter Costello. Picture: AAP

A 4.5 per cent return in the March quarter has swelled the Future Fund’s assets to a record $179bn and pushed its year-to-date return into double digits, even as it retained neutral levels of risk across the portfolio.

The sovereign wealth fund grew by more than $16bn over the 12 months through March, posting a 10.1 per cent return on a one-year basis and 10.9 per cent for the financial year to date.

Its total investment returns from the original $60.5bn contribution in 2006 have now climbed to $118bn.

But it is still holding on to large amounts of cash and is cautious on the investment outlook.

Chairman Peter Costello said the fund had performed well as he warned of the investment challenges ahead.

“Economies and markets have improved considerably since the COVID-related falls in the March quarter of last year.

“While the outlook overall is greatly improved there remain uncertainties and a number of risks, including the potential for setbacks and a variety of different scenarios in the global recovery,” he said.

With interest rates at ultra-low levels, markets were “very sensitive” to any prospect of inflation and rising rates, he warned.

“The board recognises that the investment challenge ahead is significant and is continuing to assess and position the portfolio to generate mandated long-term returns while managing risk.

“It remains our mission to continue to generate strong risk-adjusted returns over the long-term, which strengthens Australia’s long-term financial position,” Mr Costello said.

As at the end of March, the wealth fund was sitting on more than $33bn in cash, equivalent to 19 per cent of its portfolio.

Its Australian equities holdings, in comparison, came in at a more muted $12.6bn, or 7 per cent of the portfolio, while international equities accounted for a quarter of its total holdings, worth $45bn.

“The Future Fund has grown strongly in the recovery, after a good comparative performance during the downturn,” the fund’s CEO Raphael Arndt said.

“This means the recovery is from a higher base. The fund is designed to show resilience through the cycle.”

On a 10-year basis the fund has returned 9.1 per cent per annum versus its 6.1 per cent target.

“Listed equities, particularly developed and emerging markets equities, performed exceptionally strongly, bolstered by COVID vaccine developments and substantial fiscal stimulus measures,” Dr Arndt said of the quarterly returns.

Private equity was also a strong performer, he noted.

Private equity now makes up 14.6 per cent of the portfolio, the third largest allocation behind global equities and cash. Alternatives are next on the list, at 14.4 per cent of the total holdings.

“We remain focused on carefully managing risk, recognising that the pandemic has had deep and lasting impacts on economies and investment markets which investors need to understand and assess. On balance we are continuing to target neutral risk levels across the portfolio as we position it to be robust to a range of different scenarios,” Dr Arndt said.