Australia's $64 billion Future Fund is unlikely to reduce its asset allocation in shares, despite the volatility in global equity markets, and is seeking further investments in the banking sector.
Chairman David Murray criticised yesterday the equity market practice of short selling, which has been temporarily banned by regulators this past week in a bid to reduce volatility in the local sharemarket.
''It's a practice which I have a serious aversion to,'' he said, speaking before the two-day Sovereign Wealth Funds conference, to open in Sydney today.
Mr Murray said the Future Fund did not engage in short selling, whereby investors, particularly hedge funds, profit from falling share prices by borrowing shares from others.
''I don't understand, as an institutional investor, why you'd lend your money to someone ... to have them trash it and give it back to you.
''It's like your son says to you, 'Dad, can I borrow your car? Don't worry: it will be all right when I give it back.'''
Mr Murray also said the fund's long-term view on shares investment remained, despite the current volatility in financial markets,
''I imagine within Australian equities there would be an investment somewhere in a bad equity,'' he said.
''I'm sure we'll have a bad year.
''The prevailing sentiment is that the situation in the United States is quite weak and that it will be a difficult environment for equities ... but the long-term focus we have means that shouldn't matter to us.
''One thing we need not do is chop and change those allocations.''
The Future Fund was set up in 2006 to pay the previously uncovered liabilities of public service superannuation.
As of June 30 this year, it held assets of $64.181 billion, including an $8.522 billion investment in Telstra. Cash assets worth $34.574billion make up 62.1 per cent of the Future Fund, excluding Telstra.
It has $9.795 billion invested in global equities, making up 17.6 per cent, and $5.141 billion in Australian shares, constituting 9.2 per cent of its total asset allocation.
Mr Murray said he wanted the Future Fund to diversify out of cash.
''What we are concerned about is the buy-in price of portfolios as we keep transitioning out of heavy cash allocation into our long-term strategic asset allocation.
''Our main concern is, at what stage do you move into the asset classes we've identified and are the buy-in prices acceptable?''
Mr Murray, a former Commonwealth Bank chief executive, said the Future Fund was particularly interested in Australian banks because of their strong fundamentals which meant''the yields are fantastic.
''When you're sitting on cash, partly intentionally and partly because of the build-up of our investments, you get that opportunity: you don't let it go.''
Mr Murray said low interest rates in the US had contributed to the current global financial market crisis.
''What's happened is, there's been easy monetary policy for a long time, which has caused financial assets around the world to be bought at very high prices, and that has to be unwound.
''Part of the high returns-to-assets [ratio] has been caused by super-leveraging of assets, and that also has to be unwound.''
Reserve Bank of Australia board member and Australian National University economics professor Warwick McKibbin said yesterday the Future Fund should copy the Norwegian sovereign wealth pension fund, which takes in surplus wealth from petroleum revenue.
The Future Fund, excluding Telstra, produced a return of 1.54 per cent, or $652 million, in 2007-08. AAP