* Future Fund posts returns of 12.8 pct for 2012
* Portfolio increased to A$82.4 bln
* Property exposure up with U.S. purchases
By Jane Wardell
SYDNEY, Feb 5 Australia's state pension fund is
seeking to build up its Australian infrastructure and U.S. and
European property investments as it struggles to meet its
The Future Fund said bank deleveraging after the global
financial crisis meant there were still good opportunities for
property investment, particularly in the stressed European and
The A$82.4 billion fund increased its exposure to property,
infrastructure projects and timberland over the 12 months to
Dec. 31. At the end of the year, the proportion of the fund
invested in property was 6.6 percent, or A$5.4 billion, from 6
percent. Australia and the U.S. account for more than A$2
billion each of that investment.
Its infrastructure projects and timberland portfolio,
predominantly investments within Australia, rose to 6.4 per
cent, or $5.3 billion, from 5.7 per cent.
"We will keep on building [the infrastructure portfolio] for
a while yet," David Neal, chief investment officer of the fund,
told reporters on a conference call.
The fund late last year stepped up its investment in the
U.S. property market with a $350 million stake in a fund
investing in U.S. residential apartments and a $59 million
investment in Dallas-based property company The Howard Hughes
The fund on Tuesday reported returns of 12.8 percent last
year, significantly higher than the 7.9 percent annual return
achieved over the past three years and 5.3 percent over the past
The fund, created in 2006 by the federal government to pay
the pensions of state employees, has increased its portfolio to
A$82.4 billion from A$73.1 billion a year ago, notably on gains
of A$10 billion last year from world stock markets.
The fund increased its allocation to Australian and world
stock markets over the past year to 34.5 percent of its total
assets at the end of 2012 from 31.6 percent a year earlier,
while running down cash holdings to 10.3 percent from 13.8
The fund, which is expected to start paying out in 2020, has
been struggling to meet its mandated returns target in a low
Despite a strong 2012, its current annualised returns of 5.4
percent are well below its mandate of a long-term average annual
return of at least consumer price inflation (CPI) plus 4.5
percent to 5.5 percent a year.
Recent transactions in its targeted Australian
infrastructure market have proved controversial.
The fund has been accused of inflating valuations for some
assets in its A$2 billion takeover of airport assets owned by
the Australian Infrastructure Fund (AIX).
The overall purchase price is higher than the AIX's market
capitalisation of A$1.6 billion before the offer was made last
August and an independent assessment of the assets that came in
at A$1.8 billion.
Pension funds have accused the sovereign agency of
lowballing its valuation of airports in Sydney and Europe under
the deal so it could inflate the valuations for airports on
Australia's east and west coasts, which have preemptive sales
rights for Future Fund co-investors.
That has made it more difficult for co-investors to match
the offers for those two attractive assets.
"We have simply applied our processes," Mark Burgess, the
fund's managing director, told reporters. "We set the valuations
that we think are appropriate for the assets. We are not
disputing that some people have views."
(Editing by Eric Meijer)