The $117 billion Future Fund has reduced its exposure to developed market global equities and debt securities in an effort to lower the overall risk of the portfolio.
In a portfolio update to 31 March 2016, the Future Fund revealed it held 22.9 per cent of its portfolio in cash as at that date – up from 20.6 per cent in the fund's last quarterly update.
As at 31 March, the Future Fund had generated investment returns of 0.2 per cent for the 2015-2016 financial year to date – significantly below its target return of 4.3 per cent.
The year to 31 March 2016 has also been a tough one for the $117 billion fund, seeing it return just 0.4 per cent (compared to a target return of 6.1 per cent).
The increased cash holding has been made possible by reductions in the Future Fund's exposures to developed market global equities (down from 17.2 per cent at 31 December 2015 to 15.2 per cent at 31 March 2016) and debt securities (down from 11.8 per cent to 11.3 per cent).
Future Fund chair Peter Costello said the fund invests to generate strong returns over the long term while "avoiding excessive risk".
"We see prospective returns on risk at a lower level than in the immediate past years," Mr Costello said.
"We are also conscious that monetary authorities, having stimulated so much, have less flexibility now to respond to future weakness.
"Given this, we have less risk in the Future Fund than we would under more normal circumstances," he said.
Over three-, five- and seven-year periods, the Future Fund has returned well in excess of its target return of CPI plus 4.5 per cent.
Since inception, the fund has returned 7.4 per cent (above its target return of 7.0 per cent).
Future Fund managing director David Neal said the fund spent 2015 gradually reducing the overall level of risk in the portfolio.
"We are comfortable our current positioning is appropriate given the uncertain environment and our belief that we should only take on risk where the potential rewards justify it," Mr Neal said.
"The Future Fund retains ample liquidity which we feel is appropriate in the current environment. Should expected risk adjusted returns move to more attractive levels, we are well positioned to increase our exposure to risk assets."
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