Future Fund delivers 5.8%

The sovereign wealth fund returned 5.8% in the year ending 31 December 2018, beating the median balanced superannuation fund return by a wide margin.

The median balanced superannuation fund returned 0.6% in the year to 31 December and even the top quarter performance for the cohort only hit 1.4%, according to Future Fund chair Peter Costello.

"What that shows is a point we have been making for some time," Costello said in a media call this morning.

The Future Fund's portfolio is structured to take less risk and hence perform resiliently in market downturns, he said.

"The correlation is that it can underperform relative to balanced funds in times of boom, like when the stock market is up."

The Future Fund now has $147 billion in assets under management. The 10-year return is 9.7% against the target return of 6.6% per annum.

Trims private equity

The portfolio made no material changes in the second half of calendar year 2018, expect for trimming down some of its private markets assets.

"We are looking to add flexibility to prepare the portfolio for the next 10 years which we think will be [more challenging] as compared to the previous 10 years," Future Fund chief executive David Neal said.

The year-end asset allocation stands at: 23.6% in global equities (25.5% at June 30), 15.8% in private equity (14.1% previously), 14.6% in alternative assets (15.4% previously), 14.5% in cash (15.1% previously), 10.1% in debt securities (8.9% previously), 8.5% in infrastructure and timberland (8% previously) and 7.2% in property (6.4%).

The fund sold down some private equity assets but the returns and weaker Australian dollar buoyed their share in the 12-month period.

Other funds' performance

In addition to the flagship fund, Future Fund also manages other funds (with different investment mandates) for the federal government and has just added a new one.

The performance for these wasn't as exciting as the main fund for the year ending December 31.

The $9.4 billion Medical Research Future Fund returned 1.4% in the year, reaching only halfway to the target return of RBA cash rate +1.5%.

The Building Australia Fund and Education Investment Fund each stood at $3.8 billion. Both fell just under the benchmark in returns with 2.1% compared to the benchmark return of 2.2%.

The $14.4 billion DisabilityCare Australia Fund returned 2.2% over the twelve months, the same as its benchmark target.

On February 1, the Future Fund also took over the Aboriginal and Torres Strait Islander Land and Sea Future Fund (ATSILS Fund), which was established with a capital contribution of $2bn transferred from the Aboriginal and Torres Strait Islander Land Account.

Commenting on NAB's executive leadership shakeup after the  financial services Royal Commission's final report, Costello said the bank's leadership has responded appropriately and shown responsibility for the bank's actions.

"Normally you get a new chair before you get a new CEO. It will be interesting to see how they will manage this," he said.

He also laid to rest the speculation about Future Fund managing default superannuation contributions saying the Future Fund is tasked with investing historical government surplus as a sovereign wealth fund and does not invest SG contributions.

Read more: AboriginalDavid NealDisabilityCare Australia FundEducation Investment FundMedical Research Future FundNABPeter CostelloRoyal CommissionSea Future Fund ATSILS FundTorres Strait Islander Land Account
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