SYDNEY, Jan 27 (Reuters) - Australia’s sovereign wealth manager, the Future Fund, on Wednesday said it returned 8.4 percent in the year ending Dec. 31, its lowest annual return since 2011 as it boosts cash holdings amid greater global markets volatility.
Global markets have been unusually volatile since last August, largely led by fears of slowing growth in China and uncertainty over the timing of U.S. interest rate hikes.
Future Fund Managing Director David Neal said the fund has “gradually reduced the level of risk” in the portfolio through 2015.
Its exposure to Australian equities dropped to 6.5 percent at end-December compared with 8.8 percent a year ago, while the share of global equities narrowed to 24.5 percent from more than 30 percent. Cash holdings, on the other hand, ballooned to 20.6 percent of the portfolio compared to les than 13 percent at the end of 2014.
“In addition to reducing our global equity exposure we have also rebalanced our private equity portfolio locking in some of the strong gains which had been achieved,” he said in a statement.
“With the help of our managers and research partners, we’re continuing to work hard to identify opportunities that offer diversification to the portfolio... whilst controlling risk in these challenging times.”
The A$118.4 billion ($82.87 billion) fund has returned an average 10.5 percent return over the last five years.
But the fund, which has consistently outperformed its target return in recent periods, grew a mere 0.5 percent in the October-December quarter, falling short of its target of 1.4 percent.
The Future Fund was set up in 2006 with contributions of A$60.5 billion ($43.9 billion) to cover pension liabilities for public servants.
Australian shares ended 2015 more than 2 percent down, disappointing investors for a second year as slumping iron ore and metal prices hit bluechip mining stocks while onerous capital rules hurt the heavyweight banking sector. ($1 = 1.4288 Australian dollars) (Reporting by Swati Pandey; Editing by Eric Meijer)