Future Fund loses $4bn, falls 6pc

But high levels of cash and a focus on investments in debt markets have helped it to a better performance for 2008 than for other investment funds and superannuation accounts.

It still holds more than 46 per cent of its money - about $24billion - in cash, having reduced this from more than $31 billion on September 30.

The fund has recently started investing more money in private equity, the infrastructure sector and in debt markets, where it already lends large sums to Australian banks.

The Future Fund, established to help future governments meet the cost of public sector superannuation, shrank by 5.9per cent between October and December.

Its Telstra shares, which it holds separately, were worth about $7.7 billion on December31, a fall of 8.5 per cent.

Over the same period, the local market fell 22.4 per cent.

In its quarterly portfolio update, the fund announced the return on its investments for 2008 was -8.5per cent.

In contrast, the average fund manager investing in Australian shares lost about 36.6 per cent last year, according to Mercer's surveys.

The average balanced superannuation fund fell 19.7 per cent, producing the worst results since superannuation became compulsory in the early 1990s.

Future Fund chairman David Murray said the 2008-09 financial year had produced unprecedented volatility in credit and equity markets.

"Equity market declines in October 2008 were the most severe in two decades, with levels of volatility not seen for almost 80 years," he said.

At the end of last year, though, only 8.6 per cent of the Future Fund's portfolio was invested in Australian equities. Another 19.1 per cent was invested in international equities. The Higher Education Endowment Fund, which has a more conservative investment strategy, gained 1.9 per cent over the December quarter.

It added 3.7 per cent over a six-month period, although the funds have recently been transferred to the Education Investment Fund because of new legislation.