Australia’s sovereign wealth fund — the Future Fund — was not immune to the financial market carnage seen in the first quarter of the year, falling in value by 0.9% to $117.378 billion.
The fund, founded in 2006 and chaired by former Australian treasurer Peter Costello, was created to strengthen the Australian government’s long term financial position by making provision for unfunded Commonwealth superannuation liabilities – essentially public service retirement funding.
Over the past 12 months, funds under management rose by 0.4%, with gains for the 2015/16 financial year slowing to 0.2%.
Since its inception in May 2006, the fund has returned 7.4% per annum.
Here’s the fund’s portfolio allocation as at the end of the March quarter.
And, for comparison, here’s the funds asset mix from the end of the 2015 calendar year.
Noticeably, the fund’s allocation to cash rose to 22.9% to $26.885 billion, up from 20.6%, or $24.445 billion, as at the end of Q4 2015.
The allocation to developed market stocks fell to 15.2% to $17.899 billion, down from 17.2% at the end of the prior quarter.
That for domestic stocks, along with emerging market equities, was left unchanged at 6.5% and 7.3% respectively.
Although the fund maintains exposure to riskier assets, it’s a non-too-subtle defensive switch nonetheless.
Commenting on the quarterly result, Peter Costello suggested that the fund decided to carry less risk in its portfolio due to concerns about the ability for monetary policy globally to respond to potential economic weakness moving forward.
“We see prospective returns on risk at a lower level than in the immediate past years,” said Costello.
“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.
“We keep our objective front of mind and are focused on both growing and protecting our capital in the long-term.”
The caution from Costello mirrors that of RBA governor Glenn Stevens earlier this week in which he stated the recent turbulence in financial markets hinted that investors were becoming increasingly concerned that “central banks didn’t have much left they could do, if things got worse”.