Australia’s A$122.79 billion ($96.5 billion; €86.3 billion) sovereign wealth fund lowered its timberland and infrastructure allocation from 7.5 to 7.1 percent in the quarter ending in June.
The fund has been gradually decreasing its investment in timberland and infrastructure since 2013, the year in which it increased its infrastructure and timberland allocation from 6.4 percent to 8 percent. Both sectors are managed by the same Australian Government Future Fund team, with managers having said earlier this year that Future Fund will pursue an opportunistic infrastructure strategy.
Compressed timberland returns observed by the fund in mature markets such as the US are thought to be behind the decreases in timberland allocation, as US markets are now perceived to have become too competitive.
In 2013, when it was increasing its allocation Future Fund said it could make further investments offshore. The fund’s June 2012 report noted: “During the year market pricing of assets in North America appeared to strengthen as the outlook for housing starts improved and new capital entered the sector.”
The fund, which has seen double-digit returns from its Australian timberland investment, is likely for now to only look at forestry opportunities with higher returns in Australia and New Zealand. Ways to add value to timberland investments are also being researched, which has also lead to a pause in investment activity.
Meanwhile, the overall Future Fund portfolio increased in value by nearly A$9 billion from the previous quarter’s A$117.4 billion valuation, as it upped its allocation to the medical sector in order to further diversify assets.
“We maintain our overall view that risks are elevated and we are careful to take on risk only where the rewards justify it,” managing director David Neal said in the fund’s quarterly report. “This has led us to maintain lower levels of portfolio risk through the year. At the same time we continue to work closely with our global network of partners to seek out and access pockets of opportunity particularly in our private market and alternatives programs.”
UBS Global Asset Management and AMP Capital Investors are also among the managers for the fund’s infrastructure and timberland portfolio, which has been directed by Wendy Norris since the end of last year.