Australia’s sovereign wealth fund, the Future Fund, has delivered impressive returns despite ongoing economic challenges, according to its latest portfolio update.
Bloomberg noted that the fund reported an 11.9% return for the year ending September 30, pushing its total assets under management to $230 billion (US$151 billion). However, CEO Raphael Arndt warned that the current economic landscape continues to present significant challenges for investors.
Arndt highlighted that while inflation is “subsiding in much of the developed world,” it remains “higher and more volatile than investors have been used to.” This volatility, he noted, creates complications for both policymakers and investment strategies.
The CEO pointed to several factors contributing to ongoing inflationary pressures, including increased global defence spending, energy transition costs, and the impact of deglobalisation.
In response to these challenges, the Future Fund has implemented strategic portfolio adjustments. The fund has increased its cash holdings to 8.2% while reducing its private equity exposure. Additionally, it has strengthened its position in investments that offer both Australian dollar exposure and inflation protection.
Arndt noted the strong yearly performance was primarily driven by a robust rally in equity markets, positive returns from alternative investments, strong performances in credit markets, and solid infrastructure holdings.
Despite the Reserve Bank of Australia maintaining steady interest rates against market expectations of cuts, Arndt remains cautiously optimistic. The fund’s portfolio is currently positioned “toward the middle of its risk settings.”
The CEO emphasised that central banks worldwide face complex decisions regarding monetary policy. While many are considering easing cycles, the trajectory toward lower interest rates remains unclear, complicated by persistent geopolitical risks and structural economic changes.
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