The Future Fund grew by $18.8 billion in the last financial year to a record $224.9 billion, according to its latest portfolio update.
It generated an annual return of 9.1% in the 12 months to June 30, 2024, which CEO Dr Raphael Arndt described as “very strong” given the challenging market environment.
Over the same period, the S&P 500 returned 24.0 percent in local currency terms, while the S&P/ASX 200 returned 7.8 percent.
“Stock markets rallied strongly over the year, largely on the strength of the U.S. economy and expectations that U.S. interest rates had peaked and would soon begin to fall.” , Arndt said.
“Private credit and alternatives also delivered strong returns, as anticipated by our beliefs that inflation and rates would remain high and risk markets volatile. »
Future Fund Chief Investment Officer (CIO) Ben Samild added that the last financial year remained one of the fund’s best years ever in terms of alpha production across the portfolio.
The fund had a lower weighting, relative to its peers, to listed equities, which were one of the key return drivers during the 2023-24 financial year, it observed.
“Given these initial portfolio parameters, we are very pleased to be able to generate the returns that we have generated,” Samild said.
Other key performers include hedge funds and credit, the CIO said.
As of June 30, 2024, the Future Fund held 15.2 percent in alternatives, while 20.8 percent of the portfolio was invested in developed market equities and 14.5 percent in private equity.
Around 11 percent was held in the form of credit, including private credit.
Explaining the fund’s decision to build on this space and increase its allocation by around 8.6% in June 2023, Samild said the fund was based on “very compelling” data.
“We hold a mix of all kinds of credits in this portfolio. The main reason for the increase in allocation was a very large investment in public investment grade credit around October,” Samild said.
Regarding private credit, he added that the fund has been active in this area for more than a decade and has seen attractive risk-return opportunities.
Hedge funds also generated “pretty solid positive returns,” Samild observed.
“These returns have been generated in a very diversified way, both at the level of quantitative managers and discretionary managers, stock picking stock managers… We did not expect that every year it was almost built for this does not happen, but we think that the environment for qualified managers is a good solution.
“They have more degrees of freedom, there’s a lot more dispersion… within interest rate markets, between currencies and equity markets, so you can more easily put together a well-rounded portfolio. managed when you have more levers to pull,” he said.
The Future Fund’s latest update marks the first results since Greg Combet joined the Future Fund board, taking the reins from long-time chairman Peter Costello.
Commenting on the fund’s latest gains, Combet said the success of the fund’s long-term investments makes a “valuable contribution” to Australia’s financial position.
“Since its inception in 2006, investment returns have added nearly $165 billion in value,” he said.
“My priority as Chairman is to maintain focus on achieving CPI’s investment mandate at 4 to 5 percent per year over the long term, while managing risk. »
On taking the role, Combet said he remained impressed by the fund’s investments in Australian infrastructure such as airports, a major port, renewable energy, telecommunications and data centers.
“These are important investments in Australia’s future,” Combet said.
“Relying on these elements will be a priority for me, particularly given the investment opportunities in the energy transition. »
On this subject, Samild acknowledged that investments in domestic private markets, including infrastructure opportunities, carry certain “attractive portfolio characteristics”.
“It has a direct link to our own inflation-based mandate and we hold securities in our own currency, which just makes it easier to build a portfolio, so it’s already an attractive position,” he said. he declared.
“And we’re obviously based in Australia, so our knowledge of the market, we think, is reasonable, and sometimes there are comparative advantages to being the leader and investing domestically in your own economies from a partnership perspective in consortium. So there are all kinds of reasons to do it.
