Future Fund posts -1.2pc return, assets slide to $194.4bn

“Central banks are responding by tightening policy and it’s likely that further interest rate hikes will be needed to meet their inflation targets,” Costello said.

“We expect de-globalization, geopolitical tensions, trade barriers and high inflation to be a feature of the investment climate going forward.”

The negative quarter of 3.1% is the lowest return since the period ending March 2020, when the COVID-19 outbreak rocked markets.

The higher rate of inflation has raised the fund’s absolute return target going forward given that it is tasked to return 4-5% above the consumer price index.

The negative return of 1.2% is below the current return target of 10%, while the Future Fund’s three-year annualized return of 6.1% is now below the target of 7, 2%.

In all other periods, the Future Fund is well ahead of its target and has achieved an annualized return of 7.8% since its inception in May 2006, compared to the target of 6.8%, adding 134 billions of dollars to federal government coffers.

The Future Fund’s managing director, Raphael Arndt, said the fund’s overall risk parameters were rated as “neutral”.

The fund benefited from an increased allocation to alternative assets “where inflation-sensitive strategies performed strongly,” he said.

Dr Arndt added that the fund was trying to reposition the portfolio for success in a “higher inflation world”.

An analysis of changes to the Future Fund’s asset mix reveals that its cash position has decreased by $6.8 billion.

This appears to have been widely deployed in alternative assets such as hedge funds, which rose by almost $4 billion, while allocations to infrastructure and forest land also rose by $2 billion. Investments in debt securities and real estate also increased.

The value of the Future Fund’s listed equity investments fell 10% in the quarter to $55.6 billion, while its private equity holdings fell 1% to $33 billion. .44 billion dollars.

The Future Fund’s negative 1.2% return compares to the negative median return of 3.1% for balanced pension funds, according to researcher SuperRatings.

But making direct comparisons between the returns generated by pension funds and sovereign wealth funds can be difficult given tax considerations, liquidity requirements and mandates.

Dr Arndt said that in a low performance environment, the value of skilled managers increases.

“We are focused on identifying and leveraging the skills of our managers, as well as finding new talent to work with, to add extra return or reduce risk. »

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