SYDNEY• • Future Fund, Australia's sovereign wealth manager, yesterday posted its first quarterly decline in assets under management since June 2012, as it looked to reduce portfolio risk and boost cash holdings amid increased market volatility.

The fund increased the amount of cash it holds to almost one quarter of its A$117.4 billion (S$123 billion) portfolio as it says global central banks have less firepower to respond to economic weakness.

The 22.9 per cent rise in cash holdings, as of the end of March, was due to prospect for lower future returns, according to a statement by the fund. Since being formed in 2006, its assets have almost doubled from A$60.5 billion, with the fund returning 7.4 per cent per year. But the size of the fund shrank 0.9 per cent at the end of March from the end of December. In the first nine months of the financial year ending June 30, the fund returned 0.2 per cent, compared with a 15.1 per cent return in the previous corresponding period .

The fund's weak performance underscores the growing investment risks across assets as concerns about global growth continue to loom and interest rates remain near zero or in negative territory. Its chairman Peter Costello said in a statement: "We see prospective returns on risk at a lower level than in the immediate past years."

The fund has consistently warned in the past year that returns would slow. Its exposure to Australian equities was 6.5 per cent at end-March, while the share of global equities narrowed to about 23 per cent from nearly 25 per cent. Cash holdings, on the other hand, rose to about 23 per cent of the portfolio from 20.6 per cent at the end of last year. Managing director David Neal said: "The Future Fund retains ample liquidity, which we feel is appropriate in the current environment."

REUTERS, BLOOMBERG