Australians Shift Assets Over Eurozone Fears

(January 31, 2012) — The largest Australian superannuation fund has shifted its portfolio away from risk assets, fearing the Eurozone crisis could inflict further damage on the global economy.

The Future Fund, created as a buffer for future governments to meet public sector pension liabilities, revealed it shifted Aus$2.3 billion, or just over 3%, into cash in December. This brought the cash position of the fund to A$10.1 billion, or 13.8% of the entire $73 billion portfolio.

David Murray, Chair of the Future Fund Board of Guardians, said that significant stresses on the global financial system remained.

Murray said: “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. The prospect of a lengthy period of adjustment and subdued economic growth is generally apparent as signalled in global and domestic securities markets.”

In the last quarter of the year, the percentage of the fund given over to developed market equities was reduced from 16.1% to 15.7%, however the investment return on the overall portfolio was a negative 0.2% over the three months, which may have impacted the holding.

The fund’s largest shift was in alternative assets and debt securities, which saw a 1.8 and 1.4 percentage point decline respectively.

Murray said: “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. “

As a nation, Australian investors have remained some of the largest holders of equities and other risk assets, while many countries’ investors have cut back on their exposure. The overall holding of bonds by Australian pension funds has hardly altered in the past decade, according to a survey by investment consulting firm Towers Watson. Since 2001 their allocation to bonds has actually fallen by one percentage point whereas other nations with large pension fund assets increased by double digit percentage point margins.