Australia’s sovereign wealth fund, the Future Fund, released its quarterly portfolio update earlier today with the value of assets under management increasing by $610 million to $117.83 billion as of September 30.
While small, the increase of 0.52% came despite significant stock market declines, both domestically and abroad.
Over the September quarter Australia’s benchmark ASX 200 index fell by 8.01%, its largest quarterly decline in four years.
One of the most interesting features of the Future Fund portfolio update is just that – what assets it invested in.
The fund’s mandate is to target a return of at least CPI +4.5 to +5.5% per annum over the long term via acceptable but not excessive risk.
To provide some background on changes to the asset allocation, here’s its portfolio weighting as of June 30 this year.
And here it is three months later on September 30.
The first thing that stands out is the reduction in overall allocation to cash, Australian stocks and emerging market equities. As at the end of the September quarter the funds cash allocation stood at $17.74 billion, a reduction of $5.15 billion from June 30. Its weighting to Australian stocks slid by $360 million to $7.597 billion while investment in emerging market equities dipped by $1.768 billion to $9.266 billion.
Also noteworthy was that the allocation to developed market stocks, debt securities, private equity and alternative assets all increased as a percentage of assets under management. Combined, the increased exposure to these assets largely mirrored the reduction in cash, Australian and emerging market stocks.
While falling asset prices would have contributed to the decline seen in Australian and emerging market stocks, it appears that the fund was also busy buying beaten down developed market assets as others were selling. Not a bad performance one has to say.
Future Fund chairman Peter Costello set up the whole thing up in 2006 and was happy with the quarterly result.
“We are pleased with how the portfolio has operated during a period when there was a large correction in Australian equities and increased volatility generally,” he said.
The fund is designed to strengthen the Australian government’s long term financial position by making provision for unfunded superannuation liabilities for Australian public sector workers.