Despite volatile conditions, Australia’s sovereign wealth fund has delivered a strong annual return of 11.5 per cent as its assets climbed to $162.5 billion at the end of the financial year.

The solid return has helped the Future Fund earn more than $100 billion in investment returns since its inception in May 2006. Further, the annualised 10 years return of 10.4 per cent has exceeded the Fund’s target return of 6.5 per cent.

Future Fund chair, Peter Costello, said US-China trade tensions and geopolitical tensions weighed on the global economy even as central banks eased 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. In this uncertain environment the board is maintaining its patient long-term approach to investment,” he said in a market update released on Wednesday.

David Neal, chief executive added: “The investment environment remains challenging. We are prioritising diversification and flexibility as we dynamically manage the portfolios to respond to shifting global conditions.

“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.”

In the longer term, he said, the global economy will face structural challenges including demographic shifts and high levels of debt. “We remain alert to a range of uncertainties and risks and the potential for shocks to investment markets.

Once again, Neal underlined the fund’s view that prospective long-term real returns are lower relative to history.

The June update showed the fund holds 35.5 per cent per cent of its assets in listed equities, 9 per cent in debt securities and 11.9 per cent in cash.

At the end of June, it had 15.8 per cent of its assets allocated to private equity, 6.7 per cent to property, and 7.5 per cent to infrastructure and timberland.

The sovereign wealth fund’s exposure to alternative assets was 13.5 per cent at the end of the 2019 financial year.

The fund has made a slight shift in asset allocation since the release of its December update. It has slightly increased its allocation to Australian equities (up 1.2 per cent) property (0.5 per cent) and infrastructure and timberland (up 1 per cent).

The cash balance has dropped slightly on the 14.5 per cent held at December end. Also, allocations to developed markets listed equities, alternative investments and debt securities were all marginally lower.

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