Future Fund reports 3.4% drop in March Quarter

  • Apr 27, 2020 AEST
  • Team Kalkine
Future Fund reports 3.4% drop in March Quarter

Australian Sovereign Wealth Fund, the Future Fund delivered a return of -3.4% in the first quarter of the calendar year 2020 when the S&P/ASX 200 was down 23.1% and S&P 500 was down 19.7%. At the end of the period, the fund had assets of $162 billion.

Financial year-to-date return of the fund stands at -0.2%. Hon Peter Costello AC, Chair of the Board, noted that they have been vocal about the inherent risks and the need to position the portfolio for a number of uncertain outcomes.

Management has been offloading a number of illiquid positions to improve portfolio flexibility and due to high pricing. Fund’s approach has augmented the ability to navigate the large-scale dislocation bought by COVID-19.

Fund’s Board is positioned for the volatile environment. And, the Management is focused on embracing portfolio flexibility to ensure liquidity and portfolio resilience for a range of scenarios, as the global economic impact of COVID-19 unfolds.

It would also enable the Fund to capitalise on opportunities in the current market environment for long-term sustainable returns. The fund evaluates the value of the illiquid assets as of 30 June through testing, which is supervised by independent audit.

Dr Raphael Arndt, Chief Investment Officer, stated that the Fund embraced the disruption from a position of strength. Since the fund has sold or reduced more than 30 individual illiquid positions over the recent years, it has provided flexibility in the portfolio.

Fund’s defensive strategies have performed in line with the expectations during the last quarter. He added that it is premature to ascertain whether the fiscal and monetary policy stimulus would be sufficient for the damage to global growth.

Fund has participated in several opportunities that were created due to the market disruptions. At this juncture, the fund remains committed to diversification, flexibility and risk management.

Over the past ten years, the fund has delivered a return of 9.2%, while seven-year return stands at 9.6%, five-year return is 6.8% and three-year return is 7.8%. Since inception, the fund has delivered a return of 7.7%.

 

Source: future fund website

 

Over the previous period, the Fund’s exposure to cash reduced to 9.6% from 13.7%, as the fund may have deployed cash. Other reductions in the portfolio compared to December 2019 include Australian equities and Emerging market equities.

Largest increment within the asset classes was recorded in Private equity, which was allocated 18.2% compared to 14.9% in the previous quarter. This was followed by a 1.3 ppts increase in allocation to alternatives at 14.7%.

 

Source: future fund website

 

Medical Research Future Fund

In the financial year-to-date period, the fund delivered a return of -1.9%. Since inception on 22 September 2015, the fund has delivered a return of 3.3%. Over the past three-year period, it has delivered a return of 3%.

As of 31 March 2020, the fund had $742 million or 4.3% in Australian equities. Other allocation are as follows:

  • Developed markets allocation was 12.2% or $2.07 billion.
  • Emerging markets allocation was 6.2% or $1.05 billion.
  • Private equity allocation was 2.7% or $464 million.
  • Property allocation was 3.2% or $548 million.
  • Infrastructure allocation was 3.8% or $647 million.
  • Debt securities allocation was 11.4% or $1.94 billion.
  • Alternatives allocation was 11% or $1.88 billion.
  • Cash allocation was 45.2% or $7.71 billion.

 

Aboriginal and Torres Strait Islander Land and Sea Future Fund

Since inception on 1 February 2019, the fund had been in an initial transitional phase, as the Board developed an investment strategy for the long term. Starting on 1 October 2019, the fund invested in a diversified portfolio alongside the Medical Research Future Fund.

Below is the allocation of the fund as of 31 March 2020:

  • Australian equities allocation was 5.7% or 108 million.
  • Developed markets allocation was 15.9% or $303 million.
  • Emerging markets allocation was 8% or $152 million.
  • Private equity allocation was 3.5% or $67 million.
  • Property allocation was 4.2% or $79 million.
  • Infrastructure allocation was 4.9% or $94 million.
  • Debt securities allocation was 14.8% or $281 million.
  • Alternatives allocation was 14.4% or $273 million.
  • Cash allocation was 28.7% or $545 million.

 

Future Drought Fund

On 1 April 2020, the fund invested in a range of asset classes, following the development of a long-term investment strategy. Given its investment mandate, the fund needs to generate an average return of CPI + 2-3% over a long term with acceptable risk.

Below is the allocation of the fund as of 1 April 2020:

  • Australian equities allocation was 7.3% or $290 million.

Developed markets allocation was 15.2% or $605 million.

  • Emerging markets allocation was 8.3% or $332 million.
  • Private equity allocation was 2.5% or $100 million.
  • Property allocation was 4.1% or $164 million.
  • Infrastructure allocation was 4.4% or $176 million.
  • Debt securities allocation was 10.4% or $415 million.
  • Alternatives allocation was 11.7% or $467 million.
  • Cash allocation was 36.1% or $1.44 billion.

 

Emergency Response Fund

On 1 April 2020, the fund invested in a range of asset classes, following the development of a long-term investment strategy, with its investment mandate requiring the fund to generate average return of CPI + 2-3% over a long term with acceptable risk.

Below is the allocation of the fund as of 1 April 2020:

  • Australian equities allocation was 7.3% or $290 million.
  • Developed markets allocation was 15.1% or $605 million.
  • Emerging markets allocation was 8.3% or $332 million.
  • Private equity allocation was 2.5% or $100 million.
  • Property allocation was 4.1% or $164 million.
  • Infrastructure allocation was 4.4% or $175 million.
  • Debt securities allocation was 10.4% or $415 million.
  • Alternatives allocation was 11.7% or $467 million.
  • Cash allocation was 36.3% or $1.44 billion.

 

DisabilityCare Australia Fund

Investment mandate for the fund has the AU 3-month BBSW rate of + 0.3% pa calculated on a rolling 12-month basis, as its benchmark return. Assets of the fund are invested in cash and long-term securities.

Over the past twelve months, the fund has delivered a return of 1.4% compared to 1.5%, its benchmark target.

 


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