Concentrate on returns not social targets, warns Future Fund chairman Peter Costello

The Future Fund on Wednesday reported a return of -3.7 per cent for the 12 months to December, equal to $7.4 billion decline within the worth of its belongings, as its funding portfolio was hit by sharp declines on fairness markets.

It’s the weakest return over a calendar 12 months since 2008, when it returned -8.5 per cent, although the fund’s returns had been stronger than the -4.8 per cent return made by a typical superannuation fund final 12 months.

‘That is an funding fund, we make investments for return. That’s what we’re right here for.’

Peter Costello, Future Fund chairman

Costello mentioned the fund had confronted an “extraordinarily troublesome” funding surroundings, as international share markets tumbled in response to central banks elevating rates of interest sharply. The ASX 200 misplaced 5.5 per cent in 2022, and Wall Road’s S&P 500 dropped 13.6 per cent.

Costello highlighted the chance of recession in developed world economies, and mentioned rates of interest had additional to rise, together with in Australia, as economists predict.

“The cycle of rising charges to manage inflation is just not but full and brings with it the potential of recessions in a lot of the developed world,” he mentioned.

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The decline within the fund’s belongings is available in stark distinction to the bumper 12 months in 2021, when it returned 19.1 per cent, and it comes as traders are fretting over the chance of worldwide recession.

The fund’s chief govt, Dr Raphael Arndt, mentioned he didn’t suppose markets had been pricing in a serious recession, and the Future Fund remained cautious about its publicity to consumer-facing companies. Markets have began the 12 months extra optimistically, with the ASX 200 up 8 per cent in 2023, however Arndt predicted extra volatility as central banks attempt to deliver excessive inflation below management.

“We count on volatility in markets, and we count on inflation to be risky too over coming years,” Arndt mentioned.

Futures markets are betting the Reserve Financial institution subsequent week will elevate the money fee from 3.1 per cent to three.35 per cent, which might be the ninth rate of interest rise since Could final 12 months.

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