Future Fund RE allocation rises 1.2% in six months, further increases to come

Australia’s A$69bn Future Fund has continued to grow its real estate exposure, reporting increased assets of 1.2 percent to A$3.4 billion from the six months to 30 September. According to the fund’s annual report released today further increases to real estate and other “tangibles” are planned.

Australia’s Future Fund has boosted its real estate holdings by A$820 million (€576 million; $800 million), or 1.2 percent, in the last six months, it revealed today.

The sovereign wealth fund, established in 2006 to assist the Australian government meet the cost of public sector superannuation liabilities, now has property assets of A$3.4 billion, according to its third quarter figures, released today.

Future Fund has been continually upping its exposure to the asset class, with holdings increasing 4.2 percent in the last 18 months alone.

While releasing its third quarter results, the fund also published its 2009/2010 annual report, which revealed an aim to up its exposure to “tangibles”, comprising real estate, infrastructure and timberland, from 9.3 percent to 14.5 percent by 30 June 2011.

In total, the fund has grown assets under management by A$2.8 billion to A$69.3 billion over the last quarter. The return from the portfolio, excluding from its holding in Australian telephone company Telstra, was 4.2 percent for the quarter.

In its report, Future Fund said it would invest in real estate via pooled funds, co-investments, separate accounts and individual investments “circumstances depending on the merits in each particular”.

At 30 June, 47 percent of Future Fund’s real estate exposure was to Asia Pacific assets, 27 percent to Americas and 26 percent to Europe. The fund said 59 percent of investments were made in the retail sector, 13 percent offices, 13 percent mixed-use and the remainder spread across various other real estate types.

“To date, we have been pursuing opportunities primarily in the retail sector, where we have seen good value and which has traditionally been difficult to access,” the fund said in its report.

However going forward, Future Fund said a lack of debt capital in Europe should lead to further investment opportunities. It said: “the retraction of debt capital in the US real estate markets has also generated attractive opportunities for new capital…we expect similar opportunities may emerge in Europe of the coming years.”

The fund said it had invested 49 percent of its allocation to infrastructure to “economic” assets where performance was linked to economic activity, 44 percent to “regulated” assets reflecting “monopolies providing essential services” and 7 percent to investments generating revenue from long-term contracts. Its geographical spread was 39 percent in Australia, 34 percent in UK, 15 percent in Europe and 12 percent in North America.

Future Fund also grew its exposure to timberlands during the year to 30 June but was limited in its private equity activity, committing to just two managers a total of $200 million. It said: “Given the difficult environment, we have taken a highly selective and opportunistic approach to allocating new commitments.” Total private equity commitments by the fund to 30 June were A$7.8 billion.