Australia's Future Fund wants its return target lowered by the Turnbull government due to risk fears

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Australia’s Future Fund wants the Turnbull government to “revisit” the return target to temper the urge to take unwanted risk in the wake of a lower yielding environment and mounting global challenges.

The nation’s sovereign wealth fund, which netted a 7.8% return in 2016, signaled the target of reaching annual returns of 4.5-5.5% above inflation without taking excessive risks could come into conflict over the next decade. The fund managed $127.7 billion at December 31, 2016, compared to its corpus of $60.5 billion.

“We think it was a proper mandate for the last 10 years, we think it needs revisiting for the next 10 years and the government will consider it,” fund chairman Peter Costello said, referring to when the investment target set when he set up the fund in 2006. While the sovereign wealth manager has held talks with the government on a new target, Costello didn’t say what it would be.

Future Fund has repeatedly warned that with global bond yields remaining at or near record lows, while riskier asset classes such as equity and real estate surging due to an unending supply of central bank liquidity, return expectations had to be toned down. Since inception in May 2006, the fund has returned 7.7%.

The fund’s equity exposure at December 31 was 29.1%, down from 29.4% three months earlier. It cuts its property, cash and fixed income holdings and increased infrastructure, private equity and alternative asset exposure, according to a presentation. cash allocation reduced largely due to the fall in the Australian dollar against the greenback, it said.

“While global equity markets have strengthened over recent months, uncertainty regarding global monetary policy and a range of geopolitical factors remains. We maintain our long-held view that we see a challenging investment environment ahead with elevated risks and lower prospective returns than in previous years.”

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