The $147 billion Future Fund does not aspire to become a superannuation fund and is not angling for superannuation money, chair Peter Costello told a media briefing on Monday, following the release of the fund’s latest quarterly result.
Costello argued that the people who had suggested the sovereign wealth fund be allowed to manage the public’s superannuation money have “mischaracterised” the notion of a public default fund.
“The debate has not been well understood,” he said, adding that the fund could conceivably play some sort of role in public super, such as helping the administrators of a new government-backed default scheme with asset allocation or by recommending managers.
The Future Fund was hit by turbulent markets in the latter part of 2018 but still managed to post returns of 5.8 per cent for the 12 months to December 2018.
This figure is completely in line with the benchmark Canberra has mandated and considerably higher than returns most top superannuation funds achieved last year, data the fund released on Monday showed. Still, those returns were in stark contrast to the 10.7 per cent delivered for the 12 months to the end of September.
During the briefing, Costello highlighted the fund’s strong performance during 2018, despite dramatic market falls in the second half of the year. And, he spoke of the challenging times ahead due to the longer-term risks around economic growth, the normalisation of interest rates and geopolitical and trade tensions.
“The board has been carefully positioning the portfolio to pursue its long-term return objective, while navigating the volatile environment and the expectation that prospective long-term returns will be lower than in recent years,” he said.
For his part, chief executive David Neal noted at the briefing the rising risks around the economic cycle and geopolitics and generally fully valued asset prices. To that end, he said, portfolio construction continues to emphasise and balance diversification and flexibility and the fund is managing liquidity closely.
He flagged a selldown in the fund’s portfolio of illiquid assets as it prepares for a more volatile world.
“We have continued to gradually reduce risk in the fund’s portfolio,” he said. “In 2018, we commenced work to sell about $5 billion of illiquid assets in order to prepare for potentially increased volatility and to increase portfolio flexibility.
“Over the last year, the Future Fund’s diversified approach has continued to control risk levels whilst our management of the portfolio, particularly across private markets, has driven strong returns.”
The bulk of the fund’s $147 billion portfolio is invested in equities, but just 5.8 per cent, or $8.5 billion, is in Australian equities. It has $23.2 billion in private equity and $12.5 billion in infrastructure and timberlands.
Notably, the cash weighting is steady at 14.5 per cent, or $21.3 billion, and debt securities account for 10.1 per cent or $14.7 billion.
The Future Fund delivered a 7.5 per cent return over the three years to the end of December, and 9.7 per cent over 10 years – well ahead of benchmarks.