Future Fund strategy shift reaps rewards

The $92 billion Future Fund says it will maintain its shift to listed equities, infrastructure and private equity after reporting returns that beat the performance of superannuation funds.

And it has flagged "relatively low" returns, as markets price in "modest growth" and low interest rates for a prolonged period.

One of Australia's biggest investors, the fund has returned 8.2 per cent a year over five years - exceeding its benchmark and the 5.6 per cent annual returns recorded by flagship "balanced" super funds over that tumultuous period.

Over three years, the fund has returned 9.7 per cent annually, again higher than its target and annual balanced super fund returns of 8.2 per cent.

The Melbourne-based fund lowered its investments in cash, alternative assets and debt securities over the year to September.

It also boosted its exposure to domestic and overseas shares, private equity and infrastructure and timberland.

Outgoing managing director Mark Burgess said the fund did not have in mind major shifts in the portfolio, which grew from $80 billion to $91.7 billion over the 12 months.

"I don't think you should expect to see dramatic changes from that portfolio just there," he told BusinessDay. "We undertook significant changes in the portfolio ... out of credit, into equities was the predominant theme at the beginning of this year. We don't have it in our minds another major shift unless something changes."

The fund was established in 2006 with $60.5 billion in government contributions to pay for public sector superannuation liabilities. It has a mandate to return inflation plus 4.5 to 5.5 per cent a year over the long term, that is 10 years.

The fund is fighting with another of Australia's biggest investors, the $65 billion industry super fund AustralianSuper. The dispute centres on the price the Future Fund paid for Perth Airport as part of a $1 billion infrastructure investment. Mr Burgess said the Future Fund was "very comfortable" in its position.

Mr Burgess also flagged an announcement on his next role in coming few months, and said he had been approached about a role in academia. The fund has appointed an adviser to find a successor.

Questioned on whether the Future Fund was looking to follow big super funds in increasingly taking investment management in-house, chief investment officer David Neal said a small team with a tight culture was well suited to comparing investment opportunities. "And that we employ the very best: we have the scale and the resources to be able to employ the very best external managers to implement those detailed strategies for us."

The fund will release its annual report next week.