THE Future Fund has transferred assets out of property, debt securities and alternative assets and into cash holdings as it prepares for a long period of "subdued economic growth".
The fund's latest quarterly update also reveals it has increased its exposure to companies in emerging markets while decreasing exposure to developed economies, where the slowdown is expected to be greatest.
The fund returned 1.6 per cent last year, ending at $73 billion. It lost money in the second half of the year, with total assets down 3.1 per cent from a peak of $75.1 billion at June 30.
"While there have been some positive signs in the US economy, underlying pressures remain and Europe continues to wrestle with debt-related challenges and the risk of recession," said Future Fund chairman David Murray.
"The prospect of a lengthy period of adjustment and subdued economic growth is generally apparent, as signalled in global and domestic securities markets.
"In this environment, the board continues to place a premium on patience and liquidity, ensuring that the portfolio is prudently positioned to take up attractive opportunities while avoiding excessive risk."
Developed-market equities, at $11.5 billion, declined from 16.1 to 15.7 per cent of the total portfolio in the December quarter. This is the lowest allocation to equities in developed markets since mid-2009 when the fund was only partially invested.
Allocation to emerging-market equities increased from 4.8 per cent to 5.1 per cent in the quarter, returning to a high set in June 2011.
Cash allocations at the end of the year were the highest since December 2010, at $10.1 billion, or 13.8 per cent of the fund up from 10.8 per cent at the start of the quarter and 8.8 per cent at June 2011. The Future Fund classifies cash as "Australian bank bills and deposits".
The sovereign wealth fund was established in 2006 to cover unfunded public sector superannuation liabilities of about $130 billion.