Australia’s sovereign wealth fund missed its return target for the year to June and clocked lower returns than pension fund rivals as the fund positioned itself more conservatively and warned that markets were under-pricing geopolitical and economic risk.
The A$206 billion ($133 billion) Future Fund returned 6% in fiscal 2023 compared with a target return of 10%. Australia’s similarly sized two largest pension funds, AustralianSuper and Australian Retirement Trust, returned 8.2% and 10%, respectively, over the period.
The Future Fund cut its allocation to developed market equities and added cash in the three months to June 30. Global share markets rose over those three months, with the U.S. benchmark S&P 500 .SPX index up 10%.
“Markets have been under-pricing the significant economic and geopolitical risk that we have anticipated,” CEO Raphael Arndt said in a statement.
“We have made significant changes to the portfolio over the past two years and this means that our holdings and returns will look increasingly different from those of other asset owners,” he added.
The fund expects persistently higher inflation to keep real returns lower than the 8.8% averaged over the past decade.
The Future Fund was established in 2006 to cover escalating pension liabilities for public servants and rivals Australia’s largest pension funds in size.
($1 = 1.5434 Australian dollars)
Reuters