The Future Fund has reported a 0.6 per cent fall in assets during the September quarter to $193.13 billion, down from $194.38 billion in the June quarter.
Despite this fall, which came on the back of a negative 1.2 per cent return in the 2021-22 financial year, Future Fund chair Peter Costello said that the sovereign wealth fund has proved “resilient and well positioned” to shocks while also maintaining its long-term performance.
Over the quarter, he noted that developed listed markets were down by 5.2 per cent. Annually, the Future Fund fell 3 per cent compared to a fall of nearly 8 per cent for the ASX 200.
Mr Costello said that the withdrawal of “exceptional” monetary and fiscal stimulus was reducing asset prices and introducing much more volatility.
“The inflationary pressure unleashed by unprecedented stimulation, together with political events, has led to central banks tightening policies by raising interest rates,” he said.
“Central banks are responding by tightening policy and will continue to increase rates to fight inflation, increasing the risk of a policy induced recession.”
The Future Fund has been actively repositioning its portfolio to respond to the challenging and volatile environment, according to CEO Raphael Arndt.
“We are focused on enhancing portfolio resilience while increasing our allocation to strategies designed to protect the portfolio against inflationary scenarios. In addition, the risk of a global recession has increased at the same time, further testing investment strategies,” he said.
The Future Fund’s portfolio continues to be positioned moderately below a neutral risk setting.
In terms of asset allocations, 9.7 per cent of the Future Fund was in cash, down from 12.1 per cent in the previous quarter. The fund’s allocations to private equity (18.2 per cent), debt securities (8.7 per cent) and alternatives (18.4 per cent) all increased over the quarter.
A total 8.3 per cent of the Future Fund was allocated to Australian equities, up from 8.1 per cent in the June quarter, while allocations to global equities in developed (14.8 per cent) and emerging (5.5 per cent) markets also increased slightly.
“Looking ahead, key issues will be the extent of monetary policy tightening required to achieve inflation targets, how markets will respond to tightening measures, and the impact of fiscal policy measures on global financial systems. Ongoing geopolitical tensions also continue to pose risks to investors,” Mr Costello stated.
“The board continues to take a prudent approach to positioning the portfolio. We are focused on sustaining a portfolio that is as robust as possible to a range of scenarios, and that balances our risk and return objectives. We expect that real returns will continue to be much lower than in recent decades.”
Total funds under management, which also includes the Medical Research Future Fund, the ATSILS Fund, the Future Drought Fund, the Emergency Response Fund and the DisabilityCare Australia Fund sat at $240.5 billion as of 30 September.
