Gloomy future leads fund to make a switch to cash

By June the fund aims to sell down its holdings of domestic and international shares from 37.4 per cent of its portfolio to 32.5 per cent, its annual report stated yesterday.

On the other hand, the fund said it would boost the share of its assets held in cash from 8.8 per cent to 10 per cent.

The change is being driven by the view that growth in big developing countries will remain weak for a while yet, as Europe and the United States try to tackle their debt woes.

David Murray, who is serving out his final year as the fund's chairman, said that uncertainty in financial markets would "undergo significant structural adjustments over many years to come".

"This will result in below-trend growth in many developed market economies while emerging market economies may offer healthier growth prospects, albeit not without their own risks," Mr Murray said.

The shift to safety comes as some investors question whether Australian superannuation funds, which are more heavily exposed to shares than retirement funds overseas, are too heavily weighted towards equity investments.

The research firm Chant West said this week the typical growth fund lost 5.1 per cent in the turbulent September quarter.

The Future Fund's operating costs rose sharply last year, to $444 million in the year to June, from $266 million a year earlier.

Costs as a proportion of assets under management also rose, as the fund raised its spending on investment managers.