The Australian Future Fund eased its equities exposure in the final quarter of 2021 during a period that saw the government-owned investment vehicle crack A$200 billion for the first time.
Future Fund chief, Raphael Arndt, said in a release that overall the now A$204 billion portfolio had moved to a “neutral risk setting”.
“However, we have taken some risk off, particularly in the listed equities program, given the run-up in prices and our view is that risk is likely to be less well-rewarded in future,” Arndt said.
“… We anticipate lower returns in the future. In response we are seeking out opportunities to access value from less liquid and more skill-based investments and working our relationships with partners to identify more focused opportunities both to secure returns and to manage risk.”
Over the December quarter the Future Fund total listed shares allocation fell from 33 per cent to 31 per cent in a portfolio markedly different from fellow sovereign investor, the NZ Superannuation Fund (NZS).
According to the latest NZS update to the end of October 2021, the sovereign wealth fund had 67 per cent invested of the approximately $60 billion portfolio in shares, including 63 per cent in mostly index-linked global equities.
By contrast the Future Fund reported much higher allocations to private equity, alternatives and property than the NZ: the Australian sovereign fund reported over 37 per cent of the portfolio invested across the three asset classes against 11 per cent for NZS.
The Future Fund returned an annualised 10.8 per cent over the 10 years to the end of December. Latest figures from NZS show 10-year average annual returns of just over 13 per cent to October 31, 2021.
For calendar year 2021, the Future Fund was up more than 19 per cent.
Matt Whineray, NZS chief, said in a release last year: “Despite all the challenges of 2021, the Guardians remains in good heart and the NZ Super Fund is continuing to perform very well, returning 27.19% (unaudited, after costs, before NZ tax) over the 12 months to 31 October 2021.”
But given its high global equities exposure the NZS has been buffeted by the extreme market volatility greeting 2022 with the fund size ticker (an estimate published on its website) flickering between about $58 billion and over $60 billion year-to-date.
Late last year, the NZS also invested over $350 million across two ‘green’ funds: committing US$100 million (circa NZ$150 million) to the Fifth Wall Climate Technology Fund (a US vehicle investing in technology designed to decarbonise real estate); and, a further $208 million to the Copenhagen Infrastructure Partners’ (CIP) Energy Transition Fund.
Created to offset future fiscal costs of the country’s universal pension system, the NZS has grown since inception in 2003 on a mix of investment performance and regular government top-ups (resumed in 2017 after a nine-year hiatus).
The Future Fund was seeded in 2006 with A$60 billion (with no further government contributions) under a mandate to defray the costs of a huge government employee pension liability.