Future Fund chairman Peter Costello highlighted investor concerns that any rise in inflation could push interest rates up to historically low levels as booming markets drove the total assets of the funds to a record $ 179 billion.
In an update Thursday, the taxpayer-owned fund posted returns of 10.1% for the year through March and 4.5% for the quarter, as global sharing markets advanced. Despite the rebound, however, the fund reiterated its cautious stance, highlighting the challenges ahead as governments unwind extraordinary stimulus policies that have inflated asset prices.
President Peter Costello said the outlook had “improved greatly” from the depths of last year, but also highlighted a number of risks, including the possibility of global setbacks and concern in financial markets over the future. at the risk of inflation driving up borrowing costs.
“With interest rates at historically low levels, the markets are very sensitive to any prospect of inflation and rising rates as a result,” said Costello, also president of the masthead owner, Nine Entertainment.
“The Board recognizes that the investment challenge ahead is significant and continues to assess and position the portfolio to generate long-term binding returns while managing risk.”
Australia’s inflation rate of just 0.6% for the March quarter, revealed on Wednesday, was surprisingly low. Despite this, investors are still worried that higher inflation will mean that interest rates will end up being raised 0.1% earlier than the 2024 target set by the Reserve Bank.
The assumption that interest rates will remain close to zero for years to come is one reason why stock prices have rebounded so strongly after the coronavirus crisis, despite continued economic weakness.
Future Fund chief executive Raphael Arndt said the fund is aiming for “neutral” risk levels across its portfolios, and said that while many economies have recovered, others have remained sensitive to risk. new shocks.
“The political parameters continue to support the markets, but this is being counted as an asset and the unwinding of these measures will be a delicate exercise,” said Dr Arndt.