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Australia's Future Fund misses target returns on reduced exposure to risk

Published 01/09/2016, 10:41 am
Updated 01/09/2016, 10:50 am
© Reuters.  Australia's Future Fund misses target returns on reduced exposure to risk

Sept 1 (Reuters) - Australia's sovereign wealth manager, the Future Fund, on Thursday posted a below-target return of 4.8 percent for the latest financial year as it lowered its exposure to risk assets due to prevailing uncertainty around the global economy.

Future Fund managing director David Neal said in a statement on Thursday the level of risk in its A$122.8 billion ($92.3 billion) portfolio had been reduced gradually during 2015 and the expectation was that strategy would continue.

"We are comfortable our current positioning is appropriate given the uncertain environment and our belief that we should only take on risk where the potential rewards justify it," he said.

"Should expected risk adjusted returns move to more attractive levels, we are well positioned to increase our exposure to risk assets."

In the 12 months to June 30, the fund's 4.8 percent return compared to 15.4 percent during the prior year. The Future Fund had targeted an annual return of 5.5 percent.

Future Fund chairman Peter Costello said the investment environment remained challenging with returns likely to be lower and risk higher.

"While global growth remains weak, Monetary Authorities globally continue to have limited flexibility to stimulate activity," he said in a statement.

"With this outlook it is prudent to hold the level of risk in the portfolio at a lower level than would normally be the case."

Just over one-fifth of the portfolio is in cash.

The fund's value was 4.6 percent higher at the end of June compared to the end of March, after having posted a decline in assets during the March quarter.

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The fund's exposure to Australian equities was 6.3 percent at end-June, down from 6.5 percent at end-March, while the share of global equities remained steady at 22.5 percent.

The Future Fund was set up in 2006 with contributions of A$60.5 billion to cover pension liabilities for public servants. ($1 = 1.3307 Australian dollars)

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