Future Fund sheds $5.7b in March quarter as COVID-19 hit assets
The Future Fund shed $5.7 billion in assets under management after clocking a negative return of 3.4 per cent in the March quarter amid extreme market volatility and poor economic conditions brought on by the coronavirus crisis.
But the decline was much shallower than the falls experienced by many global markets as the COVID-19 pandemic accelerated in parts of the world, including Australia's benchmark S&P ASX/200 index which fell 23.1 per cent during the three month period.
Future Fund chair Peter Costello said he had been preparing for a "range of uncertainties" over the past few years. Credit:Janie Barrett
The sovereign wealth fund's chair Peter Costello said in prepared remarks that the fund had had been preparing for an economic downturn by selling down over-priced illiquid assets. "For some time we have warned about the risks to markets and the need to position the portfolio for a range of uncertainties," Mr Costello said in a statement. "Over the past few years, the board has been selling down a number of illiquid exposures due to high pricing and to increase portfolio flexibility."
Mr Costello described the economic impact of the pandemic as an "historic dislocation" and said the board was focused on positioning the fund for a continuation of the "challenging and volatile environment".
The quarterly results did not take into account the fall in unlisted asset prices as the Future Fund did not engage an out-of-cycle valuation audit.
"The Future Fund has always marked its illiquid assets to market as at 30 June after rigorous testing and under a methodology supervised by independent audit. This will be done as usual after 30 June 2020," Mr Costello said.
The former federal treasurer said if market valuations had been marked down by 7.5 per cent, the fund's financial year to date would have been -3.5 per cent, rather than -0.2 per cent.
The Future Fund is a major shareholder in Melbourne Airport, owning a 20.34 per cent stake alongside wealth giant AMP and industry fund manager, IFM Investors.
The $162 billion fund has reduced or sold more than 30 illiquid assets in recent years, according to Chief investment officer Raphael Arndt.
The quarterly update shows the Future Fund has reduced its asset allocation to infrastructure by 0.6 per cent, increased its private equity share by 3.3 per cent and reduced Australian equities exposures by 0.7 per cent. The fund's total cash stockpile decreased by 4.1 per cent to $15.6 billion.
Dr Arndt said the fund had participated in "several opportunities" created by the market disruption in recent weeks but reiterated "prudent management of risk" was "important as ever".
"It is too early to know whether the unprecedented fiscal and monetary policy stimulus by governments around the world will be sufficient to offset the significant impact to global growth due to the COVID-19 pandemic. As a result, while we have participated in several opportunities created by the market disruption over recent weeks, we remain cautious in terms of overall portfolio positioning."