Peter Costello, chair of Future Fund

Peter Costello said the board of the $165.7 billion Future Fund “remains alert” to slowing economic growth and possible market shocks, despite more than 50 per cent of the portfolio being allocated to risk assets.

In a quarterly update, the chair of the Australian sovereign wealth fund said the risk levels in the portfolio were being managed “prudently.” He said the global economy remained “challenged” by demographics and debts levels and said prospective long-term returns were lower than in recent years. Even so, allocations were largely unchanged in the three-month period through September as assets grew by $3.1 billion.

“The board remains alert to the uncertain outlook for global growth and the potential for shocks to markets while recognising that accommodative monetary policy continues to support asset prices,” the former Federal Treasurer said. Our “thoughtful and disciplined approach to investing will remain paramount as we navigate this environment.”

Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, warned last week on a panel in Washington DC that the global economy was now in a “great sag” and central bank monetary policy would do little to stimulate growth. This comes as the International Monetary Fund downgraded its outlook for global growth to the lowest level since the global financial crisis.

More than one third of the Future Fund’s portfolio, or 36.2 per cent, is allocated to public market equities including 10 per cent in emerging markets, and they have 15.8 per cent in private equity. The next highest allocation is in alternatives at 13.7 percent, included hedge funds. The Future Fund says alternatives act as a diversifier in the portfolio and they invest with a “handful of truly exception managers,” according to their annual report.

“We continue to prioritise diversification to help manage risk and flexibility to support our ability to adjust the portfolio dynamically as the investment environment changes,” said Fund Future chief executive David Neal in the update.

He added that the fund was also in the process of investing $7.8 billion that was received in July 2019 for the Medical Research Fund. Until that is completed, almost 45 per cent of the medical fund is sitting in cash.

The Future Fund returned 1.9 per cent over the three-month period compared to 5.3 per cent in the previous quarter, according to the statement. Over 12 months the fund is up 11.3 per cent.

Sarah Jones worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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