Statement by David Neal, Managing Director of the Future Fund to the Senate Finance and Public Administration Committee
Additional Estimates, 9 February 2016, Parliament House, Canberra
In late January we released our regular update on the performance and positioning of the five funds for which the Board is responsible and I would like to provide a short summary of the key points.
As at the end of December 2015, the Future Fund has grown to $118.4 billion. Originally funded with contributions of $60.5 billion, investment returns have added nearly $58 billion to the value of the Fund.
The 2015 calendar year return of 8.4% is above the target return for the period of 6.1% and the Fund has exceeded its target return over 3, 5 and 7 year periods and since inception in 2006.
However, we have been highlighting for some time that asset prices have been driven up by record low interest rates and that the withdrawal of monetary stimulus would likely see prospective returns lower than in recent years.
We have also been conscious of the risks across markets as central banks adjust their policy settings and as policy makers attempt to generate sustainable growth. This outlook means greater volatility and lower prospective returns.
During 2015 and the start of 2016, markets have been weaker than in recent years and demonstrated greater levels of volatility. We have been positioning the portfolio for the environment, consistent with our investment strategy, and reducing the overall level of risk in the portfolio.
The DisabilityCare Australia Fund, Building Australia Fund and Education Investment Fund now stand at $4.3 billion, $3.7 billion and $3.7 billion respectively. We have continued to invest thes funds in accordance with their low risk mandates.
We received contributions into the Medical Research Future Fund in the last quarter of 2015 and have begun investing that Fund in line with its mandate.The Medical Research Future Fund now stands at $3.1 billion.
In total the Board of Guardians invests over $133 billion on behalf of future generations of Australians.
At the start of 2016, the Fund was recognised by Central banking Journal as Sovereign Investor of the Year. It is pleasing to be recognised for our work and performance, but our focus remains on ensuring that we continue to manage the assets entrusted to us prudently, particularly given the continuing challenges posed by markets.