Australia’s Future Fund, managing $261 billion, is increasing its gold holdings and engaging active fund managers to shield its portfolio from rising inflation. The sovereign wealth fund warns of persistent global instability, describing the current environment as a ‘permacrisis’. In a newly released paper, the Future Fund outlined strategies to navigate heightened social and geopolitical tensions, which could challenge institutional investors’ ability to replicate past returns. Established in 2006 using proceeds from the privatisation of Telstra, the Future Fund aims to grow assets to cover public sector pension liabilities.
The fund is pivoting away from passive strategies, awarding active mandates in Australian small-cap and Japanese equities. It favours ‘quality’ stocks with pricing power and the Australian dollar, viewed as an effective inflation hedge due to its ties to commodities. Infrastructure assets, including investments in Sydney Airport, Transgrid, and CDC Data Centres, alongside retirement and student accommodation, have also been added to the portfolio since May 2021. These assets tend to maintain value during inflationary periods due to inflation-linked cash flows.
To address inflation vulnerabilities, the Future Fund is reducing its exposure to nominal fixed-rate bonds. It argues that traditional negative equity-bond correlations weaken during high inflation, disrupting conventional portfolio construction. Instead, the fund is prioritising resilience to absorb shocks and adapt quickly in a world characterised by increasing economic and geopolitical uncertainty. CEO Raphael Arndt notes that resilience, rather than solely chasing alpha, is key in the current environment.
