The Future Fund said it continues to pursue investments that provide inflation protection, alongside greater exposures to local currency, as it unveiled a solid double-digit return for the 12 months to September 2024.
In its latest portfolio update, the sovereign wealth fund announced a return of 11.9 per cent for the year to 30 September, adding $24.4 billion and bringing the fund to $229.7 billion.
Dr Raphael Arndt, chief executive of the fund, credited the result to strong global share markets, particularly in the US, alongside investments in alternatives.
“This was a strong 12-month result which adds to the Future Fund’s strong long-term performance,” he said.
“Listed equity markets rallied through much of the year, driven largely by the strength of the US economy. The Future Fund benefitted from this and also experienced positive contributions from its alternatives, credit and infrastructure holdings.”
As at 30 September 2024, the fund held around 27 per cent in global equities while 14.7 per cent of the portfolio was in alternatives. A further 10.9 per cent was held in credit and 9.9 per cent in infrastructure and timberland.
However, the CEO cautioned of economic challenges ahead, explaining that inflation, while subsiding in much of the developed world, “remains higher and more volatile than investors have been used to”.
In light of this, the fund has sought to bolster resilience in its portfolios to address these inflationary pressures, he said.
“Central banks around the world are in an easing cycle which is positive for risk assets. However, the path to lower rates will not be straightforward as continued geopolitical risks and big economic drivers including defence spending, the energy transition and deglobalisation are all inflationary,” Arndt observed.
Highlighting the fund’s latest position paper, Geopolitics: The Bedrock of the New Investment Order, in which it noted higher inflation and interest rates among key drivers for the need to diversify across geographies and asset classes, the CEO said the Future Fund’s investment activities have been focused on mitigating risk and building resilience.
“Our activities have been focused on continuing to build resilience and flexibility into the portfolio as we seek attractive risk-adjusted returns,” Arndt said.
“We have continued to pursue investments that provide greater exposure to the local currency and protection against higher inflation.”
The portfolio is positioned towards the middle of its risk settings, he added.
Earlier this year, Future Fund CIO Ben Samild also highlighted inflation and inflation volatility as the “big changing thing” on the fund’s radar, explaining it has made circa $100 billion worth of portfolio changes between 2020 and 2024 in the face of an evolving investment landscape that was predicted to become more inflationary.
Appearing in a Bridgewater Associates podcast in September, Samild explained: “We’ve tried to be thoughtful about the kind of inflation we’re concerned about, what we can do, how much of a cost we’re willing to bear, what event-style issues that end up leading to inflation.
“We aren’t going to predict and we’re not going to manage the portfolio too specifically, but we would just want to make sure we can survive them and ideally thrive on the other side of them.”
