Australia’s $168 Future Fund reduced risk across the portfolio in the final quarter of 2019 and raised cash to the highest level in a year amid a “challenging” investment environment.

The fund, which returned 1.4 per cent for the three months ended December, sold some Australian and developed market equities, private equity, property, debt and alternatives, the statement showed. Cash increased to 13.7 per cent of the portfolio, up from 11.4 per cent in September, and was at the highest since December 2018.

“We’ve been carefully positioning the portfolio to navigate the challenging investment environment,” said chief executive David Neal in the statement. “We are maintaining an average level of risk. We continue to prioritise portfolio flexibility to ensure we can adjust the portfolio quickly to respond to emerging opportunities and risks.”

Neal told Professional Planner’s sister magazine Investment Magazine in November that his team was looking to sell off a “large slice” of private equity assets on the secondary market to free up more capital. At the time, he said they were struggling to make a dent in the portfolio because prices kept going up. With risk now sitting “around the middle” of the fund’s expected range, private equity makes up 14.9 per cent of the portfolio versus 15.8 per cent in September.

“We are also focused on identifying and taking advantage of our managers’ skill so that we can add additional return or reduce risk,” the CEO said. “This includes our focus on strategies that have low correlation with risk assets.”

Assets in the final quarter of the year increased $2.3 billion and the fund returned 9.9 per cent per annum over the last decade. Over one year, it returned 14.3 per cent.

Chair Peter Costello said managing risk was “paramount” after the fund beat its benchmark target across all time horizons thanks to a rally in the equity markets and easy monetary policy.

“It is important to assess which asset values are supported by earnings as opposed to those supported merely by cheap money,” he said in the statement. “A number of risks remain. Global debt levels and demographic pressures will shape economies and markets over the medium to long term. We maintain our long-held view that prospective returns will be lower than recent returns.”

Sarah Jones worked for Bloomberg News in London for more than 12 years covering equity markets and global asset management. Prior to moving to the UK, she worked for Australian Associated Press in Sydney covering economics and monetary policy.
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